Foundations Of Finance
10th Edition
ISBN: 9780134897264
Author: KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher: Pearson,
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Chapter 9, Problem 11SP
a)
Summary Introduction
To determine: The after tax cost of debt.
b)
Summary Introduction
To determine: The cost of
c)
Summary Introduction
To determine: The cost of common stock.
d)
Summary Introduction
To determine: The cost of new issued common stock.
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(Individual or 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 10.1 percent. Interest payments are $50.50 and are paid semiannually. The bonds have a current
market value of $1,122 and will mature in 10 years. The firm's marginal tax rate is 34 percet.
b. A new common stock issue that paid a $1.85 dividend last year. The firm's dividends are expected to continue to grow at 7.8 percent per year, forever. The price of the firm's common stock is
now $27.25.
c. A preferred stock that sells for $150, pays a dividend of 8.8 percent, and has a $100 par value.
d. A bond selling to yield 11.8 percent where the firm's tax rate is 34 percent.
a. The after-tax cost of debt is %. (Round to two decimal places.)
MAGGIE LTD Q&S
(Computing individual or component costs of capital) Compute the cost of capital
foreach of the following sources of financing:
a. A bond that has a $1,000 par value (face value) and a contract or
coupon interest rateof 12 percent. Interest payments are $120 and
are paid semiannually. The bond hasa current market value of $1,125
and will mature in 10 years. The firm's marginal tax rate is 34 percent.
b. A new common stock issue by a firm that paid a $1.75 dividend last
year. The firm's dividends are expected to continue to grow at 8
percent per year forever. The price ofthe firm's common stock is now
$28.00.
c. A preferred stock that sells for $150, pays a 10 percent annual dividend, and has
a
$125 par value.
d. A bond whose yield to maturity (based on the bond's market
price) is 13 percentwhere the firm's tax rate is 34 percent.
Identify the features and working formula for this question as per below
(add if there's more): -
Par Value =
Coupon rate =
Interest payments =…
(Individual or 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 11.0 percent. Interest payments are $55.00 and are paid semiannually. The bonds have a current market value of $1,125 and will mature in 10 years. The firm's marginal tax rate is 34 percent.b. A new common stock issue that paid a $1.80 dividend last year. The firm's dividends are expected to continue to grow at 7.0 percent per year, forever. The price of the firm's common stock is now $27.50.c. A preferred stock that sells for $125, pays a dividend of 9.0 percent, and has a $100 par value. d. A bond selling to yield 12.0 percent where the firm's tax rate is 34 percent.
a. The after-tax cost of debt is %. (Round to two decimal places.)b. The cost of common equity is %. (Round to two decimal places.)c. The cost of preferred stock is %. (Round to…
Chapter 9 Solutions
Foundations Of Finance
Ch. 9 - Define the term cost of capital.Ch. 9 - Prob. 2RQCh. 9 - Why do firms calculate their weighted average cost...Ch. 9 - Prob. 4RQCh. 9 - Prob. 5RQCh. 9 - Prob. 6RQCh. 9 - Prob. 7RQCh. 9 - Prob. 1SPCh. 9 - Prob. 2SPCh. 9 - (Cost of equity) In the spring of 2018, the Brille...
Ch. 9 - Prob. 4SPCh. 9 - Prob. 5SPCh. 9 - Prob. 6SPCh. 9 - Prob. 7SPCh. 9 - (Cost of internal equity) Pathos Co.s common stock...Ch. 9 - (Cost of equity) The common stock for the Bestsold...Ch. 9 - Prob. 10SPCh. 9 - Prob. 11SPCh. 9 - Prob. 12SPCh. 9 - a. Rework Problem 9-12 as follows: Assume an 8...Ch. 9 - (Capital structure weights) Wingate Metal...Ch. 9 - (Weighted average cost of capital) The capital...Ch. 9 - Prob. 17SPCh. 9 - Prob. 18SPCh. 9 - Prob. 19SPCh. 9 - (Divisional costs of capital and investment...Ch. 9 - Prob. 21SPCh. 9 - Prob. 2.1MCCh. 9 - If you were to evaluate divisional costs of...
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- (Individual or 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 percent. Interest payments are $54.50 and are paid semiannually. The bonds have a current market value of $1,121 and will mature in 10 years. The firm's marginal tax rate is 34 percet. b. A new common stock issue that paid a $1.76 dividend last year. The firm's dividends are expected to continue to grow at 6.8 percent per year, forever. The price of the firm's common stock is now $27.84 c. A preferred stock that sells for $144, pays a dividend of 8.6 percent, and has a $100 par value. d. A bond selling to yield 12.3 percent where the firm's tax rate is 34 percent.arrow_forwardMAGGIELTDQ&S . (Computing indi vidual or component costs of capital) Compute the cost of capital foreach of the following sources of financing: a. A bond that has a $1,000 par value (face value) and a contract or coupon interest rateof 12 percent. Interest payments are $120 and are paid semiannually. The bond hasa current market value of $1,125 and will mature in 10 years. The firm's marginal tax rate is 34 percent. b. A new common stock issue by a firm that paid a $1.75 dividend last year. The firm'sdividends are expected to continue to grow at 8 percent per year forever. The price ofthe firm's common stock is now $28.00. c. A preferred stock that sells for $150, pays a 10 percent annual dividend, and has a s125 par value. d. A bond whose yield to maturity (based on the bond's market price) is 13 percentwhere the firm's tax rate is 34 percent.arrow_forwardSuppose that LilyMac Photography expects EBIT to be approximately $94,000 per year for the foreseeable future, and that it has 400 10-year, 4 percent annual coupon bonds outstanding. (Use Table 11.1) What would the appropriate tax rate be for use in the calculation of the debt component of LilyMac's WACC? Tax rate Mc. Type here to search 7730arrow_forward
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