. (Computing individual or component costs of capital) Compute the cost of capital foreach of the following sources of financing: a. A bond that has a $1,000 par value (face value) and a contract or coupon interest rateof 12 percent. Interest payments are $120 and are paid semiannually. The bond hasa current market value of $1,125 and will mature in 10 years. The firm's marginal tax rate is 34 percent. b. A new common stock issue by a firm that paid a $1.75 dividend last year. The firm's dividends are expected to continue to grow at 8 percent per year forever. The price ofthe firm's common stock is now $28.00. A proferred steek that celle for ¢150 dvidond
. (Computing individual or component costs of capital) Compute the cost of capital foreach of the following sources of financing: a. A bond that has a $1,000 par value (face value) and a contract or coupon interest rateof 12 percent. Interest payments are $120 and are paid semiannually. The bond hasa current market value of $1,125 and will mature in 10 years. The firm's marginal tax rate is 34 percent. b. A new common stock issue by a firm that paid a $1.75 dividend last year. The firm's dividends are expected to continue to grow at 8 percent per year forever. The price ofthe firm's common stock is now $28.00. A proferred steek that celle for ¢150 dvidond
Chapter15: Dividend Policy
Section: Chapter Questions
Problem 7P
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Transcribed Image Text:MAGGIE LTD Q&S
(Computing individual or component costs of capital) Compute the cost of capital
foreach of the following sources of financing:
a. A bond that has a $1,000 par value (face value) and a contract or
coupon interest rateof 12 percent. Interest payments are $120 and
are paid semiannually. The bond hasa current market value of $1,125
and will mature in 10 years. The firm's marginal tax rate is 34 percent.
b. A new common stock issue by a firm that paid a $1.75 dividend last
year. The firm's dividends are expected to continue to grow at 8
percent per year forever. The price ofthe firm's common stock is now
$28.00.
c. A preferred stock that sells for $150, pays a 10 percent annual dividend, and has
a
$125 par value.
d. A bond whose yield to maturity (based on the bond's market
price) is 13 percentwhere the firm's tax rate is 34 percent.
Identify the features and working formula for this question as per below
(add if there's more): -
Par Value =
Coupon rate =
Interest payments =
Current Market price =
Time period =
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