Cost of debt. A company has outstanding 20-year, noncallable bonds with a face value of $1,000, an 11% annual coupon, and a market price of $1,294.54. If the company was to issue new debt, what would be a reasonable estimate of the interest rate on that debt? Tax rate 40% Maturity 20 Par (face) value $1,000.00 Coupon (Annual) 11% Bond Price $1,294.54 YTM = rd = Find the cost of debt Cost of debt after taxes. If the company’s tax rate is 40%, what is its after-tax cost of debt? A-T debt cost = rd(1 – T) = Adjust it for taxes A company’s preferred stock currently trades at $80 per share and pays a $6 annual dividend per share. Ignoring flotation costs, what is the firm's cost of preferred stock? Preferred stock price $80 Dividend per share $6 rp = Find cost of preferred stock
Cost of debt. A company has outstanding 20-year, noncallable bonds with a face value of $1,000, an 11% annual coupon, and a market price of $1,294.54. If the company was to issue new debt, what would be a reasonable estimate of the interest rate on that debt?
Tax rate 40%
Maturity 20
Par (face) value $1,000.00
Coupon (Annual) 11%
YTM = rd = Find the cost of debt
Cost of debt after taxes. If the company’s tax rate is 40%, what is its after-tax cost of debt?
A-T debt cost = rd(1 – T) = Adjust it for taxes
A company’s
Preferred stock price $80
Dividend per share $6
rp = Find cost of preferred stock
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