(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. A bond that has a $1,000 par value (face value) and a contract or coupon interest rate of 12.1 percent that is paid semiannually. The bond is currently selling for a price of $1,122 and will mature in 10 years. The firm's tax rate is 34 percent.b. If the firm's bonds are not frequently traded, how would you go about determining a cost of debt for this company?c. A new common stock issue that paid a $1.78 dividend last year. The par value of the stock is $16, and the firm's dividends per share have grown at a rate of 7.3 percent per year. This growth rate is expected to continue into the foreseeablefuture. The price of this stock is now $27.23.d. A preferred stock paying a 9.6 percent dividend on a $123 par value. The preferred shares are currently selling for $149.05.e. A bond selling to yield 12.9 percent for the purchaser of the bond. The borrowing firm faces a tax rate of 34 percent.a. The after-tax cost of debt from the firm is %. (Round to two decimal places.)

Solution of a. Face Value = $1000 Coupon Rate = 12.1% payment semi annually Coupon Amount…

a. A bond that has a $1,000 par value (face value) and a contract or coupon interest rate of 12.1 percent that is paid semiannually. The bond is currently selling for a price of $1,122 and will mature in 10 years. The firm's tax rate is 34 percent. b. If the firm's bonds are not frequently traded, how would you go about determining a cost of debt for this company?

a. A bond that has a $1,000 par value (face value) and a contract or coupon interest rate of 12.1 percent that is paid semiannually. The bond is currently selling for a price of $1,122 and will mature in 10 years. The firm's tax rate is 34 percent. b. If the firm's bonds are not frequently traded, how would you go about determining a cost of debt for this company?

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter7: Types And Costs Of Financial Capital

Section: Chapter Questions

Problem 11EP

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