Compute the cost of capital for the firm

Assignment Help Financial Management

Reference no: EM131926677

Part 1

(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 12.8 percent that is paid semiannually. The bond is currently selling for a price of ?$1,125 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 ?$1.73 dividend last year. The par value of the stock is ?$16?, and the? firm's dividends per share have grown at a rate of 7.1 percent per year. This growth rate is expected to continue into the foreseeable future. The price of this stock is now ?$27.86

d. A preferred stock paying a 9.1 percent dividend on a ?$128 par value. The preferred shares are currently selling for $ 146.71

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

Part 2

a. Compute the cost of capital for the firm with a bond that has a $1,000 par value? (face value) and a contract or coupon interest rate of 12.6? % that is paid semiannually. The bond is currently selling for a price of ?$1,118. and will mature in 10 years. The? firm's tax rate is 34?%

b. If the? firm's bonds are not frequently? traded, how would you go about determining a cost of debt for this? company?

C Compute the cost of capital for the firm with 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 8.48% per year. This growth rate is expected to continue into the foreseeable future. The price of this stock is now ?$28.56.

D. Compute the cost of capital for the firm with a preferred stock paying a 10.2?% dividend on a ?$123 par value. The preferred shares are currently selling for $152.35

E. Compute the cost of capital for the firm with a bond selling to yield.13.7?% for the purchaser of the bond. The borrowing firm faces a tax rate of 34?%.

Reference no: EM131926677

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