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( Individual or component costs of capital ) Compute the cost of the following: a . A bond that has $ 1 , 0 0
Individual or component costs of capital Compute the cost of the following:
a A bond that has $ par valueface value and a contract or coupon interest rate of percent. A new issue would have a floatation cost of percent of the $ market value. The bonds mature in years. The firm's average tax rate is percent and its marginal tax rate is percent.
b A new common stock issue that paid a $ dividend last year. The par value of the stock is $ and earnings per share have grown at a rate of percent per year. This growth rate is expected to continue into the foreseeable future. The company maintains a constant dividendearnings ratio of percent. The price of this stock is now $ but percent flotation costs are anticipated.
c Internal common equity when the current market price of the common stock is $ The expected dividend this coming year should be $ increasing thereafter at an annual growth rate of percent. The corporation's tax rate is percent.
d A preferred stock paying a dividend of percent on a $ par value. If a new issue is offered, flotation costs will be percent of the current price of $
e A bond selling to yield percent after flotation costs, but before adjusting for the marginal corporate tax rate of percent. In other words, percent is the rate that equates the net proceeds from the bond with the present value of the future cash flowsprincipal and interest
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