Fin 500 week 8 homework
Problem 1
A company issues 15year, $1,000 parvalue bonds, with a coupon rate of 5%. The bonds are sold for $619.70. The tax rate is 30%. Compute the cost of debt before taxes and after taxes.
Problem 2
Suppose a company issues common stock to the public for $25 a share. The expected dividend is $2.50 per share and the growth in dividends is 8%. If the flotation cost is 10% of the issue proceeds, compute the cost of external equity, r_{e}.
Problem 3
Calculate the cost of preferred stock (r_{PS}) with the given information:
Par Value = $200
Current Price = $208
Flotation Cost = $16
Annual Dividend = 12% of Par
Problem 4
A company is investigating the effect on its cost of capital with respect to the tax rate. Suppose there is a capital structure of 20% debt, 10% preferred stock, and 70% common stock. The cost of financing with retained earnings isr_{e} = 12%, the cost of preferred stock financing isr_{PS} = 7%, and the beforetax cost of debt is r_{d} = 9%. Calculate the weighted average cost of capital (WACC) given a tax rate of 35%.
Problem 5
You have been hired as a consultant to help estimate the cost of capital. You have been provided with the following data: r_{RF} = 4.10%; RP_{M} = 5.25%; and b = 1.30. Based on the CAPM approach, what is the cost of common from retained earnings?
Problem 6
A company is trying to estimate its cost of capital. The following data is provided: D_{1} = $1.45; P_{0} = $22.50; and g = 6.50% (constant). Based on the DCF approach, what is the cost of common from retained earnings?

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Solution: Fin 500 week 8 homework