(Individual or component costs of capital) Compute the cost of the following:

round to two decimal places

a. A bond that has $1000 par value (face value) and a contract or coupon interest rate of 6 percent. A new issue would have a floatation cost of 8 percent of the $1130 market value. The bonds mature in 12 years. The firm's average tax rate is 30 percent and its marginal tax rate is 35 percent. What is the firm's after-tax cost of debt on the bond?

b. A new common stock issue that paid a $1.40 dividend last year. The par value of the stock is $15, and earnings per share have grown at a rate of 11 percent per year. This growth rate is expected to continue into the foreseeable future. The company maintains a constant dividend earnings ratio of 30 percent. The price of this stock is now $25, but 7 percent flotation costs are anticipated.What is the firm's after-tax cost of debt on the bond?

c. Internal common equity when the current market price of the common stock is $45. The expected dividend this coming year should be $3.40, increasing thereafter at an annual growth rate of 11 percent. The corporation's tax rate is 35 percent. What is the cost of external common equity?

d. A preferred stock paying a dividend of 12 percent on a $130 par value. If a new issue is offered, flotation costs will be 16 percent of the current price of $167 What is the cost of capital for the preferred stock?

e. A bond selling to yield 8 percent after flotation costs, but before adjusting for the marginal corporate tax rate of 35 percent. In other words, 8 percent is the rate that equates the net proceeds from the bond with the present value of the future cash flows (principal and interest). What is the after-tax cost of debt on the bond?