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Your firm is considering a new investment proposal and would like to calculate its weighted average cost of capital. To help in this, 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 11.1%. The bond is currently selling for a price of $1,120 and will mature in 10 years. The firm's tax rate is 34%. b. If the firm's bonds are not frequently traded, how would you go about determining a cost of debt for this company? c. A new common stock issue that paid a $1.71 dividend last year. THe par value of the stock is $14, and the firm's dividends per share have grown at a rate of 7.6% per year. This growth rate is expected to continue into the foreseable future. THe price of this stock is now $27.38. d. A preferred stock paying a 9.2% dividend on a $126 par value. The preferred shares are currently selling for $145.54. e. A bond selling to yield 12.9% for the purchaser of the bond. The borrowing firm faces a tax rate of 34%.

Financial Management, Finance

  • Category:- Financial Management
  • Reference No.:- M91935737

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