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(Individual or component costs of capital) Compute the cost of capital for the firm for the following: A bond that has a $1,000 par value
(Individual or component costs of capital) Compute the cost of capital for the firm for the following:
- A bond that has a $1,000 par value (face value) and a contract or coupon interest rate of 10.8%. Interest payments are $54.00 and are paid semiannually. The bonds have a current market value of $1,130 and will mature in 15 years. The firm's marginal tax rate is 34%.
- A new common stock issue that paid a $1.77 dividend last year. The firm's dividends are expected to continue to grow at 8.4% per year, forever. The price of the firm's common stock is now $27.61.
- A preferred stock that sells for $141, pays a dividend of 8.5%, and has a $100 par value.
- A bond selling to yield 10.4% where the firm's tax rate is 34%.
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