# Compute the cost of capital for the firm for the following

Question # 00005074 Posted By: expert-mustang Updated on: 12/10/2013 12:46 AM Due on: 12/10/2013
Subject Finance Topic Finance Tutorials:
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Finance questions

Question 1 (Individual or component costs of capital) Compute the cost of capital for the firm for the following: a. A bond that has a \$1000 par value (face value) and a contract or coupon interest rate of 10.5%. The bonds have a current market value of \$1,128 and will mature in 10 years. The firm's marginal tax rate is 34%. b. A new common stock issue that paid a \$1.76 dividend last year. The firm's dividends are expected to continue to grow at 7.6% per year forever. The price of the firm's common stock is now \$27.07. c. A preferred stock paying a 9.9% dividend on a \$141 par value. d. A bond selling to yield 12.4% where the firm's tax rate is 34%. a. The cost of capital from this bond debt is ____% (Round to two decimal places). c. The cost of the preferred stock is ___% (Round to two decimal places). b. The cost of capital from the common equity ___% (Round to two decimal places). d. The cost of capital from this bond debt is __% (round to two decimal places).

Question 2 (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 \$1000 par value (face value) and a contract or coupon interest rate of 12.2%. The bonds is currently selling for a price of \$1,126 and will mature in 10 years. The firm's tax rate is 34%. 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 \$1.73 dividend last year. The par value of the stock is \$14, and the firm's dividends per share have grown at a rate of 7.6% per year. This growth rate is expected to continue into the foreseeable future. the price of this stock is not \$28.17. d. A preferred stock paying a 10.6% dividend on a \$126 par value. The preferred shares are currently selling for \$151.74. e. A bond selling to yield 13.6% for the purchaser of the bond. The borrowing firm faces a tax rate of 34%. a. The cost of capital from this bond debt is ____% (Round to two decimal places). d. The cost of the preferred stock is ___% (Round to two decimal places). b. The cost of capital from the common equity ___% (Round to two decimal places). d. The cost of capital from this bond debt is __% (round to two decimal places).

Could you provide the calculation for each steps?

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1. ## Solution: Compute the cost of capital for the firm for the following

Tutorial # 00004863 Posted By: expert-mustang Posted on: 12/10/2013 12:47 AM
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