Compute the rate of capital for the firm for the following: c) A bond that has a

Question

Compute the rate of capital for the firm for the following:

c) A bond that has a $1000 par value and a coupon interest rate of 12.6% with interest paid semiannually. A new isue would sell for $1,145 per bond and mature in 20 years. The firm's tax rate is 34%. The after-tax cost of debt for the firm is _____%.

d) A preferred stock paying a dividend of 6.9% on a $91 par value. If a new issue is offered, the shares would sell for $86.43 per share.

Please be show the steps you used in answering the questions. Thanks.

Explanation / Answer

Selling Price $ 1,145.00 Annual Interest paid $     129.97 Semiannual interst paid Effective Interest Rate 11.35% (interest paid/SP) Tax rate 34% Cost of debt 7.49% (int rate*(1-tax rate))

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