Reference no: EM132584850

Problem 1: P Corporation is issuing new ordinary shares at a market price of $28. Dividends last year were $1.30 and are expected to grow at an annual rate of 7%, forever. What is F's cost of ordinary shares?

Problem 2:  T Distribution Corporation is issuing $1500 face value bond that pays 9% annual interest and matures in 20 years. Investors are willing to pay $855 for the bond. The company has a marginal tax rate of 30%. What is the firm's after-tax cost of debt on the bond?

Problem 3: The preference shares Walter Industries Ltd currently sell for $36 a share and pay $2.50 in dividends annually. What is the firm's cost of capital for the preference shares?

Problem 4: Suppose our firm decides to issue 15-year bonds with a par value of $15,500 and semi-annual coupon payments. We still offer a 14% coupon interest rate, but immediately after issue interest rates rise to 16%. What happens to the price of these newly issued bonds?

Problem 5: Suppose our firm decides to issue 7-year bonds with a par value of $1,700 and annual coupon payments. The return on other bonds of similar risk is 7%, so we decide to offer a 7% coupon interest rate. What would be a fair price for these bonds?