Individual or component costs of capital

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(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 11.9 percent that is paid semiannually. The bond is currently selling for a price of $1123 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 $1.75 dividend last year. The par value of the stock is $16 and the firm's dividends per share have grown at a rate of 8.4 percent per year. This growth rate is expected to continue into the foreseeable future. The price of this stock is now $27.69.

d.A preferred stock paying a 9.3 percent dividend on a $120 par value. The preferred shares are currently selling for $ 153.86.

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.

Reference no: EM131222381

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