a. A bond that has a $1000 par (face value) and a contract or coupon interest ra

Question

a. A bond that has a $1000 par (face value) and a contract or coupon interest rate of 12.4%. The bond is currently selling for a price of $1,121 and will mature in 10 years.The firms tax rate is 34%. => The cost of capital from this bond dept is __% b. If the firms bonds are not frequetly traded, how would you go about determining a cost of dept for this company? c. A new common stock issue that paid a $1.74 dividend last year. The par value of the stock is $16 , and the firms dividends per share have grown at a rate of 7.3% per year. This growth rate is expected to contiue into the foreseeable future. The price of this stock now is $28.08. d. A prefered stock paying a 10.9% dividend on a $128 par year. The prefered shares are currently selling $154.63. e. A bond selling to yield 12.2% for the purchaser of the bond. The borrowing firm faces a tax rate of 34% (Questions will be asked further as one answer is solved)

Explanation / Answer

a. 1121= 12.4PVIFA(YTM,10)+1000PVIF(YTM,10) cost of capital= 10.4% after tax cost of capital= 10.4(1-.34)= 6.864%

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