After Tax Cost of Capital Assignment | Homework For You

  1. (10).Lucy Inc. has a bond with a $1,000 face value, and a coupon rate of 10%. A new issue would have a flotation cost of 5% of the $1,125 market value. The bond will mature in 40 years. Lucy’s marginal tax rate is 34%. What is the approximate after tax cost of this capital?
  1.    6.1%
  2.    7.1%
  3.    8.1%
  4.    9.1%Homework For You
  1. (11) The common stock of Lucy Inc. sells for $27.50 per share. If a new issue was to be sold the flotation costs would be 5%. Last year’s dividend was $1.80 and the anticipated growth for Lucy Inc. is 7%. What is the approximate cost of this anticipated new common stock?


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  1.    7.4%
  2. 14.4%
  3. 18.4%
  4. 21.4%
  1. (12) Lucy Inc. issued new preferred stock paying a 9% dividend on a $300.00 par value. The flotation costs will be 12% of the current price of $175.00. What is the cost of this capital?
  1. 12.5%
  2. 14.5%
  3. 17.5%
  4. 19.5%

13. The amount of capital held by Lucy Inc. is: Bonds $6,000,000, Common Stock-new of $9,600,000 and Preferred Stock of $8,400,000. Using the answers to Questions 10, 11, and 12 above what is the approximate weighted average cost of capital for Lucy Inc.?

a) 10.4%

b) 11.4%

c) 12.4%

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d) 13.4%. Get Finance homework help today

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