SDF CVBNM EXERCISE PROBLEMS Chapter 10: Cost of Capital 1. CommonSys has 8% coupon bonds that have a yield to maturity of 10%. If the firm's tax rate is 409 what is its after-tax cost of debt? 2. ros BT re CI-T) r = 10(1.4) = 670 Atlantic Mining's prefer stock is $43 per share and pays annual dividends of $3.2 per share. If the flotation cost is $3 per share, what is the cost of capital for the preferred stock? 'p = Pp/pe 3.2 %-143 3. The common stock of GlobalStar has a beta of 1.50. The risk-free rate is 6% and the market risk premium ( P ) is 7%. What is the company's cost of retained earnings, rs? 4. ASE Corporation's stock is priced at $45 per share and its last dividend (DO) was $2.50. The dividend growth rate is a constant 6%, and the company will incur a flotation cost of 10% if it sells new common stock. What is the firm's cost of new equity, re? 5. The 20-year bond is selling at $935 each. The bond has a coupon rate of 7% and par value of $1,000. The company will incur a $15 flotation cost for each bond issued. If the firm's tax rate is 35%, what is after-tax cost of the firm's debt? 6. Harris Inc. uses 60% deb, and 40% common stock. The firm's recent bonds have a yield to maturity of 9%. The risk-free rate is 7%, the market risk premium is 8%, and Harris beta is equal to 1.2. If the company's tax rate is 40%, what is the company's WACC? WACC = ward (1-T) + wpap & wers whe T=404