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 (face
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 11.1 percent. Interest payments are $55.50 and are paid semiannually. The bonds have a current market value of $1,128 and will mature in 10 years. The firm's marginal tax rate is 34 percent. b.A new common stock issue that paid a $1.78 dividend last year. The firm's dividends are expected to continue to grow at 7.6 percent per year, forever. The price of the firm's common stock is now $27.28. c.A preferred stock that sells for $129, pays a dividend of 9.49.4 percent, and has a $100 par value. d.A bond selling to yield 12.8 percent where the firm's tax rate is 34 percent.
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