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Calculate the before-tax cost of debt

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Reference no: EM133030166

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Q1. Tomtom Co. issued a 10-year bond, with a coupon of 3%, making semiannual payments and a par value of $1,000. The bond currently sells for 95% of par. The company's tax rate is 21%. Calculate the before-tax cost of debt.

Q2. Tomtom Co. issued a 10-year bond, with a coupon of 3%, making semiannual payments and a par value of $1,000. The bond currently sells for 95% of par. The company's tax rate is 21%. Calculate the after-tax cost of debt.

Q3. Jaffe Co. just paid a dividend of $4.25 per share. Dividends are expected to grow at 3% forever. The stock is currently trading at $100 per share. Calculate the cost of common stock for the firm.

Q4. The Rare Find Co. has the following information:

Debt outstanding: $450 million

The before-tax cost of debt: 5%

Market cap: $1,200 million

Cost of common stock: 10%

Tax rate: 21%

Rare Find is evaluating a project with the following information:

Over the next five years, EBIT will equal 20 million each year

An investment of $25 million is required in net working capital at the beginning of the project, which will be recovered at the end of the project.

The cost of the equipment will be $80 million depreciated using straight-line to zero over the project's life, with no salvage value.

The project requires an additional 2% risk premium above the firm's WACC.

a. Calculate the risk-adjusted WACC for the firm.

b. Calculate the operating cash flows for the first year of the project.

c. Calculate the net present value for the project.

Reference no: EM133030166

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