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(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
(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 $975 and a coupon interest rate of 9 percent. Flotation costs for a new issue would be approximately 8 percent. The bonds mature in 7 years and the corporate tax rate is 23 percent b. A preferred stock selling for $108 with an annual dividend payment of $11. The flotation cost will be $6 per share. The company's marginal tax rate is 23 percent c. Retained earnings totaling $4.8 million. The price of the common stock is $73 per share, and dividend per share was $9.26 last year. The dividend is not expected to change in the future, d. New common stock for which the most recent dividend was $2.95. The company's dividends per share should continue to increase at a growth rate of percent into the indefinite future. The market price of the stock is currently $63, however, flotation costs of $6 per share are expected if the new stock is issued a. What is the firm's after-tax cost of debt on the bond? 8.62% (Round to two decimal places.) b. What is the cost of capital for the preferred stock? % (Round to two decimal places.)
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