(Individual component costs of capital)Compute the cost of capital for the firm
ID: 2640635 • Letter: #
Question
(Individual component costs of capital)Compute the cost of capital for the firm for the following
a:A bond that has a $1,000 par value (face value) and a contract or coupon interest rate of 10.9%. Interest payments are $54.50. The bonds have a current market value of $1,120 and will mature in 10 years.The firms marginal tax rate is 34%
b: A new common stock issue that paid a $1.78 divided last year. The firms dividends are expected to continue to grow at 7.3% per year forever. The price of the firms common stock is now $27.65
c:A preferred stock that sells for $152 pays a dividend of 8.4% and has a $100 par value
d. A bond selling to yield 12.2% where the firms tax rate is 34%.
Explanation / Answer
I T Wd WACC Bond 10.90% 34% 0.687144 4.943% Stock 14.712% 0.037999 0.559% PS 8.40% 0.137429 1.154% Bond2 12.20% 34% 0.137429 1.107% 7.763%
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