Compute the cost of capital for the firm

Assignment Help Financial Management

Reference no: EM13721498

Compute the cost of capital for the firm for the following: a. A bond that has a $1,000.00 par value (face value) and a contract or coupon interest rate of 11.7 percent. Interest payments are $58.50 and are paid semi annually. The bonds have current market values of $1126 and will mature in 10 years. The firm’s marginal tax rate is 34 percent. b. A new common stock issue that paid a $1.77 dividend last year. The firm’s dividends are expected to continue to grow at 6.4 percent per year, forever. The price of the firm’s common stock is now $27.32. c. A preferred stock that sells for $154, pays a dividend of 8.2 percent, and has a $100 par value. d. A bond selling to yield 11.5 percent where the firm’s tax rate is 34 percent. a. The after-tax cost of debt is ___%.

Reference no: EM13721498

Questions Cloud

What are the firms interest tax savings : (Computing interest tax savings) Dharma Supply has earnings before interest and taxes (EBIT) of $544000, interest expenses of $274000, and face a corporate tax rate of 34 percent.

Compute the market value of the bonds : Gillian Stationery Corporation needs to raise $600000 to improve its manufacturing plant. It has decided to issue a $1000 par value bond with an annual coupon rate of 8.0 percent with interest paid semi annually and a 10-year maturity. Investors requ..

What is the cost of preferred stock financing : (Cost of preferred stock) The preferred stock of Gator Industries sells for $38.08 and pays $2.71 per year in dividends. What is the cost of preferred stock financing? If Gator were to issue 525,000 more preferred shares just like the ones it current..

Walgreen corporation is contemplating new investment : The Walgreen Corporation is contemplating a new investment that it plans to finance using one-third debt. The firm can sell new $1000 par value with a 15-year maturity at a price of $954 that carry a coupon interest rate of 12.2 percent that is paid ..

Compute the cost of capital for the firm : Compute the cost of capital for the firm for the following: a. A bond that has a $1,000.00 par value (face value) and a contract or coupon interest rate of 11.7 percent. Interest payments are $58.50 and are paid semi annually. The bonds have current ..

Different types of value in the valuation process : What types of value would you consider when assigning “value” to a firm’s stock or bond? What is the significance of each of the different types of value in the valuation process? Use examples to support your response.

Growing rapidly and it currently retains all of its earnings : MCC is growing rapidly and it currently retains all of its earnings (no dividends). If is expected that MCC will begin paying a $1.00 dividend in year 3. The year 4 dividend will grow by 50% and the year 5 dividend will also increase by 50%. Thereaft..

What should be the required lease payments : A company leases equipment for 7 years. The equipment costs $28,000 and the owner wants to earn 9.5% on the lease. What should be the required lease payments?

Operating costs other than depreciation : Wells Water Systems recently reported $12,550 of sales, $4,250 of operating costs other than depreciation, and $1,700 of depreciation. The company had no amortization charges, it had $3,250 of outstanding bonds that carry a 6.75% interest rate, and i..

User Account

All Pages