(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 $945 and a coupon interest rate of 11 percent. Flotation costs for a new issue would be approximately 9

percent. The bonds mature in 12 years and the corporate tax rate is 21 percent.

b. A preferred stock selling for $114 with an annual dividend payment of $12. The flotation cost will be $7 per share. The company's marginal tax rate is 21 percent.

c. Retained earnings totaling $4.8 million. The price of the common stock is $75 per share, and dividend per share was $8.48 last year. The dividend is not expected to change in the future.

d. New common stock for which the most recent dividend was $2.69. The company's dividends per share should continue to increase at a growth rate of 7 percent into the indefinite future. The market price of the stock is currently $46; however, flotation costs of $7 per share are expected if the new stock is issued.