Question

In: Finance

1. (Individual or component costs of capital) Your firm is considering a new investment proposal and...

1. (Individual or component costs of capital) 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 10.9 percent that is paid semiannually: the bond is currently setting for a price of $1,129 and will mature in 10 years. The firm's tax rate is 34 percent. If the firm's bonds are not frequently traded, how would you go about determining a cost of debt for this company?

b. A new common stock issue that paid a $1.74 dividend last year. The par value of the stock is $16, and the firm's dividends per share have grown at a rate of 9.7 percent per year. This growth rate is expected to continue into the foreseeable future. The price of this stock is now $27.88.

c. A preferred stock paying an 8.3 percent dividend on a $120 par value. The preferred shares are currently setting for $153.18.

Solutions

Expert Solution

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE


Related Solutions

​(Individual or component costs of​ capital)  Compute the cost of capital for the firm for the​...
​(Individual or component costs of​ capital)  Compute the cost of capital for the firm for the​ following: a.  A bond that has a ​$1 comma 000 par value​ (face value) and a contract or coupon interest rate of 11.3 percent. Interest payments are ​$56.50 and are paid semiannually. The bonds have a current market value of ​$1 comma 125 and will mature in 10 years. The​ firm's marginal tax rate is 34 percent. b.  A new common stock issue that...
(Individual or component costs of capital) Compute the cost of capital for the firm for the...
(Individual or component costs of capital) Compute the cost of capital for the firm for the following: A bond that has a $1,000 par value (face value) and a contract or coupon interest rate of 10.8 percent. Interest payments are $54.00 and are paid semiannually. The bonds have a current market value of $1,130 and will mature in 15 years. The firm's marginal tax rate is 34 percent. A new common stock issue that paid a $1.77 dividend last year....
​(Individual or component costs of​ capital)  Compute the cost of capital for the firm for the​...
​(Individual or component costs of​ capital)  Compute the cost of capital for the firm for the​ following: a.  A bond that has a​$1,000par value​ (face value) and a contract or coupon interest rate of11.8percent. Interest payments are​$59.00and are paid semiannually. The bonds have a current market value of​$1124,and will mature in10years. The​ firm's marginal tax rate is34percet.b.  A new common stock issue that paid a​$1.79 dividend last year. The​ firm's dividends are expected to continue to grow at7.3 percent per​...
(Individual or component costs of​ capital)  Compute the cost of capital for the firm for the​...
(Individual or component costs of​ capital)  Compute the cost of capital for the firm for the​ following: a. Currently bonds with a similar credit rating and maturity as the​ firm's outstanding debt are selling to yield 7.57% while the borrowing​ firm's corporate tax rate is 30​%. b.  Ordinary shares for a firm that paid a ​$ 1.02 dividend last year. The dividends are expected to grow at a rate of 4.2 4.2​% per year into the foreseeable future. The price...
​(Individual or component costs of​ capital)  Compute the cost of capital for the firm for the​...
​(Individual or component costs of​ capital)  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 outstanding debt are selling to yield 7.237.23 percent while the borrowing​ firm's corporate tax rate is 3434 percent. b.  Common stock for a firm that paid a ​$1.041.04 dividend last year. The dividends are expected to grow at a rate of 5.75.7 percent per year into the foreseeable future. The...
A client of your financial consulting firm is considering a new investment proposal that involves manufacturing...
A client of your financial consulting firm is considering a new investment proposal that involves manufacturing and selling a unique type of financial calculator. As with a standard calculator, the user can type in any number, but this calculator has only one function key that multiplies the number typed in by 1.08 -- to figure out the cost of an item inclusive of the 8% state sales tax. Your client has already identified a fully operational calculator manufacturing plant that...
A client of your financial consulting firm, Omaha manufacturing company, is considering a new investment proposal...
A client of your financial consulting firm, Omaha manufacturing company, is considering a new investment proposal that involves manufacturing and selling bright blue self driving taxi cabs. You are asked to create the NPV analysis. Your client has assembled the following information. A new machine will have to be purchased today (Year0) at a cost of $120,000. It will generate revenues all of which are taxable, expected to be $265,000, $240,000, $215,000 in each of the 3 years (year 1,2,and...
​(Individual or component costs of capital​) Compute the costs for the following sources of​ financing: a....
​(Individual or component costs of capital​) Compute the costs for the following sources of​ financing: a. A $ 1,000 par value bond with a market price of $ 940 and a coupon interest rate of 11 percent. Flotation costs for a new issue would be approximately 7 percent. The bonds mature in 7 years and the corporate tax rate is 25 percent. b. A preferred stock selling for $ 114 with an annual dividend payment of $ 8. The flotation...
Individual or component costs of capital​) Compute the costs for the following sources of​ financing: a....
Individual or component costs of capital​) Compute the costs for the following sources of​ financing: a. A $1,000 par value bond with a market price of $ 940 and a coupon interest rate of 7 percent. Flotation costs for a new issue would be approximately 5 percent. The bonds mature in 13 years and the corporate tax rate is 36 percent. b. A preferred stock selling for $ 115 with an annual dividend payment of $ 12 The flotation cost...
​(Individual or component costs of capital​) Compute the costs for the following sources of​ financing: a....
​(Individual or component costs of capital​) Compute the costs for the following sources of​ financing: a. A $1,000 par value bond with a market price of $940 and a coupon interest rate of 7 percent. Flotation costs for a new issue would be approximately 8 percent. The bonds mature in 5 years and the corporate tax rate is 35 percent. b. A preferred stock selling for $113 with an annual dividend payment of $11. The flotation cost will be $7...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT