Compute the cost of capital for the firm for the following:
a. A bond that has a $1,000 par value (face value) and a contract or coupon interest rate of 11.1%. Interest payments are $55.50 and are paid semiannually. The bonds have a current market value of $1,130 and will mature in 10 years. The firm’s marginal tax rate is 34%. What is the after-tax cost of debt?
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 6.1% per year, forever. The price of the firm’s common stock is now $27.12. What is the cost of common equity?
c. A preferred stock that sells for $132, pays a dividend of 8.6%, and has a $100 par value. What is the cost of preferred stock?
d. A bond selling to yield 12.6% where the firm’s tax rate is 34%. What is the after-tax cost of debt? Get Finance homework help today
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