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Problem 1

A company issues 15-year, \$1,000 par-value bonds, with a coupon rate of 5%. The bonds are sold for \$619.70. The tax rate is 30%. Compute the cost of debt before taxes and after taxes.

Problem 2

Suppose a company issues common stock to the public for \$25 a share. The expected dividend is \$2.50 per share and the growth in dividends is 8%. If the flotation cost is 10% of the issue proceeds, compute the cost of external equity, re.

Problem 3

find out the cost of preferred stock (rPS) with the given information:
Par Value = \$200
Current Price = \$208
Flotation Cost = \$16
Annual Dividend = 12% of Par

Problem 4

A company is investigating the effect on its cost of capital with respect to the tax rate. Suppose there is a capital structure of 20% debt, 10% preferred stock, and 70% common stock. The cost of financing with retained earnings is re = 12%, the cost of preferred stock financing is rPS = 7%, and the before-tax cost of debt is rd = 9%. find out the weighted average cost of capital (WACC) given a tax rate of 35%.

Basic Finance, Finance

• Category:- Basic Finance
• Reference No.:- M91867

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