Question
(Individual or component costs of capital)Compute the cost of capital for the firm for the following: a. 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. A bond that has a $1,000 par value (face value) and a contract or coupon interest rate of
10.6 percent. Interest payments are $53.00 and are paid semiannually. The bonds have a current market value of $1,126 and will mature in 10 years. The firm's marginal tax rate is 34 percent.
b. A new common stock issue that paid a $1.77dividend last year. The firm's dividends are expected to continue to grow at 6.2 percent per year, forever. The price of the firm's common stock is now $27.18.
c. A preferred stock that sells for $120, pays a dividend of 9.5 percent, and has a $100 par value.
d. A bond selling to yield 11.4 percent where the firm's tax rate is 34 percent.
a.The after-tax cost of debt is %. (Round to two decimal places.)
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