a. A bond that has ​$1 comma 000 par value​ (face value) and a contract or...

90.2K

Verified Solution

Question

Finance

a. A bond that has ​$1 comma 000 par value​ (face value) and acontract or coupon interest rate of 6 percent. A new issue wouldhave a floatation cost of 8 percent of the ​$1 comma 150 marketvalue. The bonds mature in 13 years. The​ firm's average tax rateis 30 percent and its marginal tax rate is 33 percent.
b. A new common stock issue that paid a ​$1.80 dividend last year.The par value of the stock is​ $15, and earnings per share havegrown at a rate of 11 percent per year. This growth rate isexpected to continue into the foreseeable future. The companymaintains a constant​ dividend-earnings ratio of 30 percent. Theprice of this stock is now ​$29​, but 7 percent flotation costs areanticipated.
c. Internal common equity when the current market price of thecommon stock is ​$45. The expected dividend this coming year shouldbe ​$3.20​, increasing thereafter at an annual growth rate of 7percent. The​ corporation's tax rate is 33 percent.
d. A preferred stock paying a dividend of 9 percent on a ​$120 parvalue. If a new issue is​ offered, flotation costs will be 12percent of the current price of ​$179.
e. A bond selling to yield 13 percent after flotation​ costs, butbefore adjusting for the marginal corporate tax rate of 33 percent.In other​ words, 13 percent is the rate that equates the netproceeds from the bond with the present value of the future cashflows​ (principal and​ interest).

a. What is the​ firm's after-tax cost of debt on the​ bond?

b. What is the cost of external common​ equity?

c. What is the cost of internal common​ equity?

d. What is the cost of capital for the preferred​ stock?

e. What is the​ after-tax cost of debt on the​ bond?

Answer & Explanation Solved by verified expert
3.9 Ratings (431 Votes)
    See Answer
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students