Question

(Individual or Component Costs of Capital) Compute the cost for
the following

sources of Financing:

a. A bond that has a $1,000 par value (face value) and a contract
or coupon

interior rate of 12%. A new issue would have a flotation cost of 6%
of the

$1,125 market value. The bonds mature in 10 years. The firm’s
average tax

rate is 30% and its marginal tax rate is 34%.

b. A new common stock issue paid a $1.75 dividend last year. The
par value of

the stock is $15, and earnings per share have grown at a rate of 8%
per year.

This growth rate is expected to continue into the foreseeable
future. The

company maintains a constant dividend/earnings ratio of 30%. The
price of

this stock is now $28, but 5% flotation costs are
anticipated.

c. Internal common equity where the current market price of the
common stock

is $43.50. The expected dividend this coming year should be
$3.25,

increasing thereafter at a 7% annual growth rate. The corporation’s
tax rate is

34%.

d. A preferred stock paying a 10% dividend on a $125 par value. If
a new issue

is offered, flotation costs will be 12% of the current price of
$150.

Answer #1

Individual
or component costs of
capital)
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
11
percent. A new issue would have a floatation cost of
6
percent of the
$1115
market value. The bonds mature in
9
years. The firm's average tax rate is 30 percent and its
marginal tax rate is
33
percent.
b. A new common stock issue that paid a
$1.60...

Individual
or component costs of
capital)
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
9
percent. A new issue would have a floatation cost of
9
percent of the
$1,130
market value. The bonds mature in
15
years. The firm's average tax rate is 30 percent and its
marginal tax rate is
35
percent.b. A new common stock issue that paid a
$1.80
dividend last...

(Individual or component costs of capital) Compute the cost of
capital for the firm for the following: A bond that has a $1,000
par value (face value) and a contract or coupon interest rate of
10.8 percent. Interest payments are $54.00 and are paid
semiannually. The bonds have a current market value of $1,130 and
will mature in 15 years. The firm's marginal tax rate is 34
percent. A new common stock issue that paid a $1.77 dividend last
year....

(Individual or component costs of
capital) Compute the cost of capital for the firm for
the following:
a. A bond that has a $1,000 par value (face
value) and a contract or coupon interest rate of 10.9 percent.
Interest payments are $54.50 and are paid semiannually. The bonds
have a current market value of $1,121 and will mature in 10 years.
The firm's marginal tax rate is 34 percet.
b. A new common stock issue that paid a $1.78
dividend...

(Individual or component costs of capital) Compute the cost of
capital for the firm for the following
a. A bond that has a $1,000 par value (face value) and a
contract or coupon interest rate of 10.1 percent. Interest payments
are $50.50 and are paid semiannually. The bonds have a current
market value of $1,130 and will mature in 10 years. The firm's
marginal tax rate is 34 percent.
b. A new common stock issue that paid a
$1.77 dividend...

(Individual
or component costs of
capital)
Compute the cost of the following:
. A preferred stock paying a dividend of
12
percent on a
$150
par value. If a new issue is offered, flotation costs will
be
9
percent of the current price of
$163
e. A bond selling to yield
12
percent after flotation costs, but before adjusting for the
marginal corporate tax rate of
33
percent. In other words,
12
percent is the rate that equates the net...

1. Compute the component costs of capital for a firm with the
following information:
a. A bond that has a $1,000 par value and a coupon interest rate
of 11%, paid semiannually. The bonds have a current market value of
$1,125 and will mature in 10 years.
b. A common stock issue that paid a $1.80 dividend last year.
The firm’s dividends are expected to continue to grow at 7% per
year forever. The price of the firm’s common stock...

(Individual or
component costs of capital) Your firm is considering a new
investment proposal and would like to calculate its weighted
average cost of capital. To help in this, compute the cost of
capital for the firm for the following:
A bond that has a $1,000 par value (face value) and a contract
or coupon interest rate of 10.9 percent that is paid semiannually:
the bond is currently setting for a price of $1,129 and will mature
in 10 years....

(Individual or component costs of capital) Compute the cost of
capital for the firm for the following: a. A bond that has a $1
comma 000 par value (face value) and a contract or coupon interest
rate of 10.9 percent. Interest payments are $54.50 and are paid
semiannually. The bonds have a current market value of $1 comma 128
and will mature in 10 years. The firm's marginal tax rate is 34
percet. b. A new common stock issue that...

Cost of capital
Edna Recording Studios, Inc., reported earnings available to
common stock of $4,000,000 last year. From those earnings, the
company paid a dividend of $1.15 on each of its 1,000,000 common
shares outstanding. The capital structure of the company includes
35% debt, 15% preferred stock, and 50% common stock. It is
taxed at a rate of 27%.
a. If the market price of the common stock is $40 and dividends
are expected to grow at a rate of...

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