(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 last year. The firm's dividends are expected to continue to grow at 7.7 percent per year, forever. The price of the firm's common stock is now $27.32.
c. A preferred stock that sells for $127, pays a dividend of 8.4 percent, and has a $100 par value.
d. A bond selling to yield 11.4 percent where the firm's tax rate is 34 percent.
I have calculated cost of individual components of cost of capital below with detailed formulas.
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