Question
Thompson Inc.s capital structure features 35% debt and 65% common equity. The appropriate tax rate is 25%. Thompsons common stock is currently selling for $70
Thompson Inc.s capital structure features 35% debt and 65% common equity. The appropriate tax rate is 25%. Thompsons common stock is currently selling for $70 per share. The company recently paid a common stock dividend of $2.50 per share and all future dividends are expected to grow at 8% per year. Thompson has a 10-year bond issue selling for 92% of par that has a 6% coupon. The par value of each bond is $1,000 and coupon payments are paid semiannually.
a. What is Thompsons before-tax component cost of debt?
b. What is Thompson's cost of common equity?
c. What is Thompsons weighted average cost of capital?
d. Thompson is considering a project that costs $100,000 and will provide cash flows of $25,000 per year for 5 years. What is the project's NPV?
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