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. A bond that has

$1,000

par value (face value) and a contract or coupon interest rate of

8

percent. A new issue would have a floatation cost of

5

percent of the

$1,120

market value. The bonds mature in

7

years. The firm's average tax rate is 30 percent and its marginal tax rate is

23

percent.b. A new common stock issue that paid a

$1.70

dividend last year. The par value of the stock is $15, and earnings per share have grown at a rate of

9

percent per year. This growth rate is expected to continue into the foreseeable future. The company maintains a constant dividend-earnings ratio of 30 percent. The price of this stock is now

$26,

but

6

percent flotation costs are anticipated.c. Internal common equity when the current market price of the common stock is

$45.

The expected dividend this coming year should be

$3.40,

increasing thereafter at an annual growth rate of

11

percent. The corporation's tax rate is

23

percent.d. A preferred stock paying a dividend of

9

percent on a

$140

par value. If a new issue is offered, flotation costs will be

11

percent of the current price of

$177.

e. A bond selling to yield

9

percent after flotation costs, but before adjusting for the marginal corporate tax rate of

23

percent. In other words,

9

percent is the rate that equates the net proceeds from the bond with the present value of the future cash flows (principal and interest).

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

nothing%

(Round to two decimal places.)

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