Compute the cost of capital for the firm for the followinga, Ask an Expert

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

a. currently bonds with a similar credit rating and maturity as the firm's oustanding debt are selling to yield 8.35 percent while the borrowing firm's corporate tax rate is 34 percent.

b. Common stock for a firm that paid $1.04 dividend last year. The dividends are expected to grow at rate of 4.2 percent per year into the foreseeable future. The price of the stock is now $24.99.

c. A bond that has $1,000 par value and coupon interest rate of 11.4 percent with interest paid semiannually. A new issue would sell for $1,153 per bond and maturein 20 years. The firm's tax rate is 34 percent.

d. A preferred stock paying a dividiend of 6.4 percent on a $91 par value. If a new issues is offered, the shares would sell for $85.73 per share.

A. The after-tax cost of debt for the firm is %?

b. the cost of common equity for the firm is %?

c. the after-tax cost of debt for the firm is %?

d. the cost of preferred stock for the firm is %?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M91931893

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