(Individual or component costs of capital) 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 10.5 percent. Interest payments are $52.50 and are paid semiannually. The bonds have a current market value of $1,121 and will mature in 10 years. The firm's marginal tax rate is 34 percet. b. A new common stock issue that paid a $1.84 dividend last year. The firm's dividends are expected to continue to grow at 6.4 percent per year, forever. The price of the firm's common stock is now $27.92. c. A preferred stock that sells for $134, pays a dividend of 9.1 percent, and has a $100 par value. d. A bond selling to yield 11.7 percent where the firm's tax rate is 34 percent. a. The after-tax cost of debt is%. (Round to two decimal places.)

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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(Individual or component costs of capital) 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 10.5 percent. Interest
payments are $52.50 and are paid semiannually. The bonds have a current market value of $1,121 and will mature in
10 years. The firm's marginal tax rate is 34 percet.
b. A new common stock issue that paid a $1.84 dividend last year. The firm's dividends are expected to continue to
grow at 6.4 percent per year, forever. The price of the firm's common stock is now $27.92.
c. A preferred stock that sells for $134, pays a dividend of 9.1 percent, and has a $100 par value.
d. A bond selling to yield 11.7 percent where the firm's tax rate is 34 percent.
a. The after-tax cost of debt is
%. (Round to two decimal places.)
Transcribed Image Text:(Individual or component costs of capital) 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 10.5 percent. Interest payments are $52.50 and are paid semiannually. The bonds have a current market value of $1,121 and will mature in 10 years. The firm's marginal tax rate is 34 percet. b. A new common stock issue that paid a $1.84 dividend last year. The firm's dividends are expected to continue to grow at 6.4 percent per year, forever. The price of the firm's common stock is now $27.92. c. A preferred stock that sells for $134, pays a dividend of 9.1 percent, and has a $100 par value. d. A bond selling to yield 11.7 percent where the firm's tax rate is 34 percent. a. The after-tax cost of debt is %. (Round to two decimal places.)
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