After-tax Cost of Debt

After-tax Cost of Debt
The Holmes Company's currently outstanding bonds have a 9% coupon and a 12% yield to maturity. Holmes believes it could issue new bonds at par that would provide a similar yield to maturity. If its marginal tax rate is 40%, what is Holmes's after-tax cost of debt? Round your answer to two decimal places.
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Cost of Preferred Stock
Torch Industries can issue perpetual preferred stock at a price of $61.00 a share. The stock would pay a constant annual dividend of $6.50 a share. What is the company's cost of preferred stock, rp? Round your answer to two decimal places.
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Cost of Common Equity
Pearson Motors has a target capital structure of 30% debt and 70% common equity, with no preferred stock. The yield to maturity on the company's outstanding bonds is 10%, and its tax rate is 40%. Pearson's CFO estimates that the company's WACC is 13.50%. What is Pearson's cost of common equity? Do not round intermediate calculations. Round your answer to two decimal places.
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Cost of Equity with and without Flotation
Jarett & Sons's common stock currently trades at $29.00 a share. It is expected to pay an annual dividend of $2.25 a share at the end of the year (D1 = $2.25), and the constant growth rate is 6% a year.
a. What is the company's cost of common equity if all of its equity comes from retained earnings? Round your answer to two decimal places. Do not round your intermediate calculations.
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b. If the company issued new stock, it would incur a 20% flotation cost. What would be the cost of equity from new stock? Round your answer to two decimal places. Do not round your intermediate calculations.
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Cost of Common Equity
The future earnings, dividends, and common stock price of Callahan Technologies Inc. are expected to grow 4% per year. Callahan's common stock currently sells for $25.50 per share; its last dividend was $2.50; and it will pay a $2.60 dividend at the end of the current year.
a. Using the DCF approach, what is its cost of common equity? Round your answer to two decimal places. Do not round your intermediate calculations.
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b. If the firm's beta is 1.50, the risk-free rate is 8%, and the average return on the market is 14%, what will be the firm's cost of common equity using the CAPM approach? Round your answer to two decimal places.
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c. If the firm's bonds earn a return of 12%, based on the bond-yield-plus-risk-premium approach, what will be rs? Use the midpoint of the risk premium range discussed in Section 10-5 in your calculations. Round your answer to two decimal places.
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d. If you have equal confidence in the inputs used for the three approaches, what is your estimate of Callahan's cost of common equity? Round your answer to two decimal places. Do not round your intermediate calculations.
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