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(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 price of this stock is now
$24.5824.58.
c.A bond that has a
$1 comma 0001,000
par value and a coupon interest rate of
11.411.4
percent with interest paid semiannually. A new issue would sell for
$1 comma 1491,149
per bond and mature in
2020
years. The firm's tax rate is
3434
percent.
d.A preferred stock paying a dividend of
7.47.4
percent on a
$9090
par value. If a new issue is offered, the shares would sell for
$83.0783.07
per share.
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