Question

Calculate the following costs of​ capitals:

a. A $1,000 par value bond with a market price of $970 and a coupon interest rate of 11 percent. Flotation costs for a new issue would be approximately 6 percent. The bonds mature in 14 years and the corporate tax rate is 21 percent.

b. A preferred stock selling for $106 with an annual dividend payment of $12. The flotation cost will be $5 per share. The​ company's marginal tax rate is 21 percent.

c. Retained earnings totaling $4.8 million. The price of the common stock is $66 per​ share, and dividend per share was $9.18 last year. The dividend is not expected to change in the future.

d. New common stock for which the most recent dividend was $2.97. The​ company's dividends per share should continue to increase at a growth rate of 11 percent into the indefinite future. The market price of the stock is currently $47​; ​however, flotation costs of $6 per share are expected if the new stock is issued.

a. What is the​ firm's after-tax cost of debt on the​ bond?

b. What is the cost of capital for the preferred​ stock?

c. What is the cost of internal common​ equity?

d. What is the cost of external common​ equity?

Answer 1