(Individual or component costs of capital) Compute the cost of capital for the firm for the following: a. Currently bonds with a similar credit rating and maturity as the firm's outstanding debt are selling to yield 8.77 percent while the borrowing firm's corporate tax rate is 34 percent. b. Common stock for a firm that paid a $1.09 dividend last year. The dividends are expected to grow at a rate of 5.8 percent per year into the foreseeable future. The price of this stock is now $24.85. c. A bond that has a $1,000 par value and a coupon interest rate of 11.9 percent with interest paid semiannually. A new issue would sell for $1,151 per bond and mature in 20 years. The firm's tax rate is 34 percent. d. A preferred stock paying a dividend of 6.3 percent on a $93 par value. If a new issue is offered, the shares would sell for $83.65 per share. a. The after-tax cost of debt debt for the firm is%. (Round to two decimal places.)
(Individual or component costs of capital) Compute the cost of capital for the firm for the following: a. Currently bonds with a similar credit rating and maturity as the firm's outstanding debt are selling to yield 8.77 percent while the borrowing firm's corporate tax rate is 34 percent. b. Common stock for a firm that paid a $1.09 dividend last year. The dividends are expected to grow at a rate of 5.8 percent per year into the foreseeable future. The price of this stock is now $24.85. c. A bond that has a $1,000 par value and a coupon interest rate of 11.9 percent with interest paid semiannually. A new issue would sell for $1,151 per bond and mature in 20 years. The firm's tax rate is 34 percent. d. A preferred stock paying a dividend of 6.3 percent on a $93 par value. If a new issue is offered, the shares would sell for $83.65 per share. a. The after-tax cost of debt debt for the firm is%. (Round to two decimal places.)
Chapter7: Types And Costs Of Financial Capital
Section: Chapter Questions
Problem 11EP
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Transcribed Image Text:(Individual or component costs of capital) Compute the cost of capital for the firm for the following:
a. Currently bonds with a similar credit rating and maturity as the firm's outstanding debt are selling to yield 8.77 percent
while the borrowing firm's corporate tax rate is 34 percent.
b. Common stock for a firm that paid a $1.09 dividend last year. The dividends are expected to grow at a rate of 5.8
percent per year into the foreseeable future. The price of this stock is now $24.85.
c. A bond that has a $1,000 par value and a coupon interest rate of 11.9 percent with interest paid semiannually. A new
issue would sell for $1,151 per bond and mature in 20 years. The firm's tax rate is 34 percent.
d. A preferred stock paying a dividend of 6.3 percent on a $93 par value. If a new issue is offered, the shares would sell
for $83.65 per share.
a. The after-tax cost of debt debt for the firm is %. (Round to two decimal places.)
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