(Individual or component costs of capital)Your firm is considering a new investment proposal and would like to calculate its weighted average cost of capital. To help in this, 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

11.4

percent that is paid semiannually. The bond is currently selling for a price of

$1,125

and will mature in

10

years. The firm's tax rate is

34

percent.

b. If the firm's bonds are not frequently traded, how would you go about determining a cost of debt for this company?

c.A new common stock issue that paid a

$1.76

dividend last year. The par value of the stock is

$14,

and the firm's dividends per share have grown at a rate of

7.2

percent per year. This growth rate is expected to continue into the foreseeable future. The price of this stock is now

$27.94.

d.A preferred stock paying a

10.3

percent dividend on a

$128

par value. The preferred shares are currently selling for

$150.87.

e.A bond selling to yield

13.5

percent for the purchaser of the bond. The borrowing firm faces a tax rate of

34

percent.