problem1. Krypton Electronics has a capital structure consisting of 45% common stock and 55% debt. A debt issue of $1,000 par value, 6.2% bonds that mature in 15 years and pay annual interest will sell for $978. Common stock for the firm is currently selling for $29.48 per share and the firm expects to pay $2.16 dividend next year. Dividends have grown at the rate of 5.4% per year and are expected to continue to do so for the foreseeable future. What is Krypton’s cost of capital where the firm's tax rate is 30%.
problem2. The target capital structure for Jowers Manufacturing is 50% common stock, 10% preferred stock, and 40% debt. If the cost of common equity for the firm is 19.6%, the cost of preferred stock is 12.2%, and the before tax cost of debt is 9.2%. What is Jowers' cost of capital? The firm's tax rate is a 34%.
problem3. An insurance company is offering a new policy to its customers. Characteristically, the policy is bought by a parent or grandparent for a child at the child’s birth. The details of the policy are as given below: The purchaser (say, the parent) makes the following six payments to the insurance company:
First birthday: $750
Second birthday: $750
Third birthday: $850
Fourth birthday: $850
Fifth birthday: $950
Sixth birthday: $950
After the child's sixth birthday, no more payments are made. When the child reaches age 65, he or she gets $250,000. The relevant interest rate is 10 percent for the first six years and 7 percent for all next years. Compute the future value of the payment at the child's 65th birthday.