?(Individual or component costs of capital?) Compute the costs for the following sources of? financing: a. A...

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Finance

?(Individual or component costs of capital?)
Compute the costs for the following sources of? financing:
a. A $1,000 par value bond with a market price of $940 and acoupon interest rate of 7 percent. Flotation costs for a new issuewould be approximately 8 percent. The bonds mature in 5 years andthe corporate tax rate is 35 percent.
b. A preferred stock selling for $113 with an annual dividendpayment of $11.
The flotation cost will be $7 per share. The? company's marginaltax rate is 30 percent.
c. Retained earnings totaling $4.8 million. The price of thecommon stock is $76 per? share, and dividend per share was $9.19last year. The dividend is not expected to change in thefuture.
d. New common stock for which the most recent dividend was$2.99. The? company's dividends per share should continue toincrease at a growth rate of 7
percent into the indefinite future. The market price of thestock is currently $62?; however, flotation costs of $6 per shareare expected if the new stock is issued.

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3.7 Ratings (626 Votes)

a Cost of debt After tax yield to maturity YTM YTM Coupon F P n F P 2 Here F Face or par value 1000 P Net market price Market price 1 Flotation cost 8 or 008 P 940 1 008 86480 n years 5 Coupon Par value Coupon rate See Answer

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