Problem 1,2,3 &4

Problem #1 (15 marks) Felix Furniture has the following two bond issues outstanding, each making semiannual interest payments. If the corporate tax rate is 35%, what is the after-tax cost of the company's debt? Bond Coupon Rate Price Quote Maturity Face Value 6.00% 103.20 5 years $450,000 6.80% 97.25 15 years 500,000 Problem #2 (5 marks) The expected market return is 12%, and T-bills are currently yielding 2%. Thompson transportation has a beta of 1.2. The company's next dividend is expected to be $2 per share, and dividends have been growing at an annual rate of 1.3%. If the stock sells for $25 per share, what is the average of the company's cost of equity? Problem #3 (16 marks) Below is the balance sheet (book value) for JP Products Inc. (JPP). The preferred stock currently sells for $15 per share and the common stock for $20 per share. There are 1,000 common shares and 100 preferred shares outstanding. Bonds are currently selling for $935.80 Assets Liabilities and Owners Equity Cash & short term $1,000 Bonds, coupon =8%, $10,000 securities paid semi-annually (maturity = 10 years) Accounts Receivable 3,000 Preferred stock (par 2,000 value $20 per share) Inventories 7.000 Common Stock 10,000 Plant & equipment 21.000 Retained earnings 10,000 Total $32,000 Total $32.000 Preferred shares pay a 7.5% dividend. The beta of the common stock is 1.5, the market risk premium is 7%, and the risk free rate is 4%. The company's tax rate is 40% a) What is the JPP's cost of debt? (6 marks) b) What is JPP's cost of preferred shares? (2 marks) c) What is JPP's cost of common equity? (2 marks) d) What are the capital structure (weights) of JPP based on market values? (4 marks) e) What is JPP's weighted average cost of capital? (2 marks)