(1) Company BW has issued $10,000 debt with an interest rate of 10%. Corporate i
ID: 2633494 • Letter: #
Question
(1) Company BW has issued $10,000 debt with an interest rate of 10%. Corporate income tax rate is 34%, find the after-tax cost of debt. (2) Company BW also has issued $10000 preferred stock. The face value is $100, coupon rate is 8%, and market pays $80 for a share. Find the cost of preferred stock. (3) Company BW has 5000 shares outstanding and the price is $40 per share. People believe this company is twice as risky as the stock market. Current T-bill rate is 3% and expected stock market return this year is 9%. What is BW's cost of equity? (4) Find the overall cost of capital for SW (WACC). (5) Company 8W has the following two investment opportunities (A and B). Which project is better, according to NPV?Explanation / Answer
debt value= $10,000
cost of Debt is 10%
so the debt cost= $1000
and the tax rate is 34%
after tax the debt value = $640.
2. For calculation of prefered stock cost the given information is not sufficient.
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