Question 1

ABC. Corp has a bond issue outstanding that currently has a market value of $1,026 per bond.

The bonds mature in fourteen years. The coupon rate is 9% and the payments are semiannually.

What is the pre-tax cost of Debt?

Notice that the pre-tax cost of debt is the bond Yield to maturity.

a- 7.32 percent

b- 7.86 percent

c- 8.68 percent

d- 9.08 percent

Question 2

ABC. Corp has a bond issue outstanding with a quoted price of $ 1,013.00 per bond. The bonds

mature in 9 years and carry a 7% coupon rate with semiannual payments. What is the firm's aftertax

cost of debt if the tax rate is 34%?

Notice that the after-tax cost of debt = Yield to maturity

(1- Tax rate)

a- 4.49 percent

b- 4.71 percent

c- 6.71 percent

d- 6.98 percent

Question 3

The Bird House just paid its annual dividend of $1.46 a share and will increase all

future dividends by 3.5 percent annually. What is the firm's cost of equity if its stock is

currently selling for $24.50 a share?

a. 9.67 percent

b. 9.89 percent

c. 10.43 percent

d. 10.77 percent

Question 4

The 8.5 percent preferred stock of Deltona, Inc. is selling for $73 a share. What is the

firm's cost of preferred if its tax rate is 35 percent and the par value per share is $100?

a. 7.57 percent

b. 9.29 percent

c. 11.64 percent

d. 13.08 percent

Question 5

Vineyard Wines issued 15-year bonds, 3 years ago. The bonds have a 6.75 percent

coupon and pay interest semiannually. Currently, these bonds are selling at 97.8 percent

of face value. What is the after-tax cost of debt if the tax rate is 34 percent?

a. 4.64 percent

b. 4.76 percent

c. 5.23 percent

d. 5.58 percent

Question 6

The common stock of Modern Interiors has a beta of 1.61 and a standard deviation of

27.4 percent. The market rate of return is 13.2 percent and the risk-free rate is 4.8

percent. What is the cost of equity for this firm?

A. 18.32 percent

B. 19.97 percent

C. 21.08 percent

D. 24.40 percent

I have the answers of these questions, but I need the equation how to solve it.