Answered step by step
Verified Expert Solution
Question
1 Approved Answer
please help with all parts. A-E (Individual or component costs of capita) Compute the cost of the following: a. A bond that has $1,000 par
please help with all parts. A-E
(Individual or component costs of capita) Compute the cost of the following: a. A bond that has $1,000 par value (face value) and a contract or coupon interest rate of 7 percent. A new issue would have a floatation cost of 5 percent of the $1,145 market value. The bonds mature in 6 years. The firm's average tax rate is 30 percent and its marginal tax rate is 21 percent b. A new common stock issue that paid a $1.70 dividend last year. The par value of the stock is $15, and earnings per share have grown at a rate of 9 percent per year. This growth rate is expected to continue into the foreseeable future. The company maintains a constant dividend-earnings ratio of 30 percent. The price of this stock is now $31, but 9 percent notation costs are anticipated. c. Internal common equity when the current market price of the common stock is $44. The expected dividend this coming year should be $3.20, increasing thereafter at an annual growth rate of 8 percent. The corporation's tax rate is 21 percent. d. A preferred stock paying a dividend of 12 percent on a $140 par value. If a new issue is offered, flotation costs will be 12 percent of the current price of $161. . A bond selling to yield 8 percent after flotation costs, but before adjusting for the marginal corporate tax rate of 21 percent. In other words, 8 percent is the rate that equates tho net proceeds from the bond with the present value of the futuro cash flow (principal and interest). . What is the firm's after-tax cost of debt on the bond? % (Round to two decimal places.) Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started