(Individual or component costs of capital) Compute the cost of capital for the firm for the following:
- A bond that has a $1,000 par value (face value) and a contract or coupon interest rate of 10.8 percent. Interest payments are $54.00 and are paid semiannually. The bonds have a current market value of $1,130 and will mature in 10 years. The firm's marginal tax rate is 34 percent.
- A new common stock issue that paid a $1.77 dividend last year. The firm's dividends are expected to continue to grow at 7.4 percent per year, forever. The price of the firm's common stock is now $27.61.
- A preferred stock that sells for $141, pays a dividend of 9.5 percent, and has a $100 par value.
- A bond selling to yield 11.4 percent where the firm's tax rate is 34 percent.
Cost of capital 2
14.29% Cost of capital
Cost of capital 6.74%
4 Cost of capital 7.52%
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Sep 21, 2019EXPERT
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