Individual

or component costs of

capital)

Compute the costs for the following sources of financing:

a. A

$1,000

par value bond with a market price of

$ 940

and a coupon interest rate of

7

percent. Flotation costs for a new issue would be approximately

5

percent. The bonds mature in

13

years and the corporate tax rate is

36

percent.

b. A preferred stock selling for

$ 115

with an annual dividend payment of

$ 12

The flotation cost will be

$9

per share. The company's marginal tax rate is 30 percent.

c. Retained earnings totaling

$4.8

million. The price of the common stock is

$ 85

per share, and dividend per share was

$ 9.55

last year. The dividend is not expected to change in the future.

d. New common stock for which the most recent dividend was

$ 3.33

The company's dividends per share should continue to increase at a growth rate of

9

percent into the indefinite future. The market price of the stock is currently

$ 55;

however, flotation costs of

$ 5

per share are expected if the new stock is issued.