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please answer a-e (Individual or component costs of capital) Your firm is considering a new investment proposal and would like to calculate its weighted average
please answer a-e
(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 12.0 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 $1.75 dividend last year. The par value of the stock is $15, and the firm's dividends per share have grown at a rate of 8.0 percent per year. This growth rate is expected to continue into the foreseeable future. The price of this stock is now $28.00. d. A preferred stock paying a 10.0 percent dividend on a $125 par value. The preferred shares are currently selling for $150.00. e. A bond selling to yield 13.0 percent for the purchaser of the bond. The borrowing firm faces a tax rate of 34 percent. a. The after-tax cost of debt from the firm is %. (Round to two decimal places.)Step by Step Solution
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