Question 1cost of debtnbsp for each of the following bonds

Reference no: EM13381284

Question 1:

Cost of debt. For each of the following bonds, calculate the after-tax cost of debt. Assume the coupons are paid semiannually, that the tax rate is 40%, and that we are dealing with $1,000 of par value.

Bond	Life	Underwriting fee	Discount (-) or Premium (+)	Coupon rate
A	20 years	$20	-$5	9%
B	16	4% of par	+10	10.4
C	15	3% of par	-15	6.8
D	25	$15	None	9.3
E	22	2% of par	-20	5.9

Question 2:

Cost of preferred equity. Taylor systems has just issued preferred shares. The shares have a 12 percent annual dividend and a $100 stated value and were sold at $97.50 per share. In addition, flotation costs of $2.50 per share must be paid.

a. Calculate the cost fo the preferred shares. What is the after-tax cost of the preferred shares?

b. If the firm sells the preferred stock with a 10 percent annual dividend and nets $90 after flotation costs, what is its cost?

Reference no: EM13381284

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