A firm offers a 15-year maturity bond with $1,000 face value and 6% coupon rate.

Question

A firm offers a 15-year maturity bond with $1,000 face value and 6% coupon rate. The current market price for the bond is $998. Selling the bonds costs the firm $60 per share. What is the after-tax cost of this debt, assuming a 34% corporate tax?

6.60%

8.12%

4.40%

31.73%

1 points

Question 2

A stock paid $3.17 in dividends at the end of last year and is expected to pay a cash dividend until infinity. No growth is expected. Investors require a 6% rate of return. What is the value of the common stock?

3.17

56

52.83

5.28

1 points

Question 3

If a firm pays a constant dividend of $3.45 a share and investors require a 12% return, what is the value of that firm's stock?

$12.45

$345.00

$28.75

$34.50

1 points

Question 4

A firm offers a 10-year maturity bond with $1,000 face value and 5.25% coupon rate. The current market price for the bond is $1025. Selling the bonds costs the firm $48 per share. What is the after-tax cost of this debt, assuming a 34% corporate tax?

5.56%

3.66%

6.07%

32.11%

1 points

Question 5

A stock paid $2.25 in dividends at the end of last year and is expected to pay a cash dividend until infinity. No growth is expected. Investors require a 5.5% rate of return. What is the value of the common stock?

2.25

3.75

37.5

39.75

1 points

Question 6

On the secondary market, bonds are trading at $1105. The bonds have a 3.75% coupon rate paid annually and mature in five years. What is the yield to maturity (expressed at an annual rate) for the bonds if an investor buys them at the $1105 market price, and what is the current yield?

This bond has a yield-to-maturity rate of 1.55% and a current yield of 3.39%.

This bond has a yield-to-maturity rate of 1.38% and a current yield of 3.75%.

This bond has a yield-to-maturity rate of 1.55% and a current yield of 3.75%.

This bond has a yield-to-maturity rate of 5.63% and a current yield of 3.39%.

1 points

Question 7

A firm issued $10 million in preferred stock at a price of $60.35 per share. The preferred shares carry an 11% dividend. The firm pays $2.87 per share in flotation costs per share. What is the cost of capital for this issuance of preferred stock?

11.54%

2.31%

43.23%

16.01%

1 points

Question 8

A preferred stock pays 3% on its par value of $200, and the required rate of return is 9%. What is the value of the preferred stock?

$60

$67

$200

$267

1 points

Question 9

Company Z does not anticipate increasing dividends for the foreseeable future. If the company's most recent dividend payment was $3.25 a share and the most recent stock price was $40 a share, what is the cost of common equity for Company Z?

8.125%

10.25%

12.525%

14.50%

1 points

Question 10

A preferred stock pays 3% on its par value of $200, and the required rate of return is 9%. What is the dividend?

$6

$60

$18

$1.80

6.60%

8.12%

4.40%

31.73%

Explanation / Answer

1.

In this case as the firm has to expense 60 to raise debt, than the actual money will be received by the company per bond will come =998-60=938

this will be PV=-938

FV=1000 , MATURITY VALUE

PMT=1000*6%=60 INTEREST PAYMENT

N=15

CLICK CPT

PRESS 1/Y = 6.67%

COST OF DEBT=6.67%

AFTER TAX COST = 6.67%*0.66=4.40%

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