Individual or component costs of capital?) Compute the costs for the following sources of? financing: a. A $1,000 par value bond...

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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 a coupon interest rate of
7
percent. Flotation costs for a new issue would beapproximately
5
percent. The bonds mature in
13
years and the corporate tax rate is
36
percent.
b. A preferred stock selling for
$ 115
with an annual dividend payment of
$ 12
The flotation cost will be
$9
per share. The? company's marginal tax rate is 30 percent.
c. Retained earnings totaling
$4.8
million. The price of the common stock is
$ 85
per? share, and dividend per share was
$ 9.55
last year. The dividend is not expected to change in thefuture.
d. New common stock for which the most recent dividend was
$ 3.33
The? company's dividends per share should continue to increaseat a growth rate of
9
percent into the indefinite future. The market price of thestock is currently
$ 55;
?however, flotation costs of
$ 5
per share are expected if the new stock is issued.

Answer & Explanation Solved by verified expert

4.1 Ratings (453 Votes)

Follwings are the individual costs of capital calculated a Cost of debt After tax YTM Yield to maturity YTM Coupon F M n F M 2 Here F Face value 1000 M Market price Price 1 Flotation cost 5 or 005 940 1 005 M 893 n year 13 Tax rate 36 See Answer

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Individualor component costs ofcapital?)Compute the costs for the following sources of? financing:a. A$1,000par value bond with a market price of$ 940and a coupon interest rate of7percent. Flotation costs for a new issue would beapproximately5percent. The bonds mature in13years and the corporate tax rate is36percent.b. A preferred stock selling for$ 115with an annual dividend payment of$ 12The flotation cost will be$9per share. The? company's marginal tax rate is 30 percent.c. Retained earnings totaling$4.8million. The price of the common stock is$ 85per? share, and dividend per share was$ 9.55last year. The dividend is not expected to change in thefuture.d. New common stock for which the most recent dividend was$ 3.33The? company's dividends per share should continue to increaseat a growth rate of9percent into the indefinite future. The market price of thestock is currently$ 55;?however, flotation costs of$ 5per share are expected if the new stock is issued.