Login to Your Account

Solution Posted by

Solution Detail

Price: $25.00

- From: Business,
- Posted on: Thu 18 Jul, 2013
- Request id: None
- Purchased: 0 time(s)
- Average Rating: No rating

Request Description

For each of the following **find the correct equations and solve for the cost** indicated. You must show work

- A bond has a $1,000 par value (face value) and a contract or coupon interior rate of 8%. A new issue would have a flotation cost of 5% of the market value. The bonds mature in 10 years. The firm’s average tax rate is 28% and its marginal tax rate is 39%. The current price is $1100. What is the after tax cost of debt?
- A new common stock issue paid a $1.50 dividend last year. The par value of the stock is $25, and earnings per share have grown at a rate of 3% per year. This growth rate is expected to continue into the foreseeable future. The company maintains a constant dividend/earnings ratio of 40%. The price of this stock is now $30, but 4% flotation costs are anticipated. What is the cost of new common equity?
- Internal common equity where the current market price of the common stock is $45.50. The expected dividend this coming year should be $4.00, increasing thereafter at a 6% annual growth rate. The corporation’s tax rate is 34%. What is the cost of common equity?
- A preferred stock paying a 10% dividend on a $100 par value. If a new issue is offered, flotation costs will be 10% of the current price of $115. What is the cost of preferred equity?
- The capital structure for the Shelby Corporation is provided below. The company plans to maintain its debt structure in the future. If the firm has a 5% after-tax cost of debt, a 12% cost of preferred stock, and a 20% cost of common stock, what is the firm’s weighted cost of capital?

Bonds $2,500,000

Preferred Stock $ 350,000

Common Stock $4,350,000

- A bond that has a $1,000 par value (face value) and a contract or coupon interior rate of 12%. A new issue would have a flotation cost of 6% of the market value. The bonds mature in 10 years. The firm’s average tax rate is 30% and its marginal tax rate is 34%.The current price is $989. What is after tax cost of debt?
- A new common stock issue that paid a $1.75 dividend last year. The par value of the stock is $15, and earnings per share have grown at a rate of 8% per year. This growth rate is expected to continue into the foreseeable future. The company maintains a constant dividend/earnings ratio of 30%. The price of this stock is now $28, but 5% flotation costs are anticipated. What is the cost of new common equity?
- Internal common equity where the current market price of the common stock is $43.50. The expected dividend this coming year should be $3.25, increasing thereafter at a 7% annual growth rate. The corporation’s tax rate is 34%. What is the cost of common equity
- A preferred stock paying a 10% dividend on a $125 par value. If a new issue is offered, flotation costs will be 12% of the current price of $150. What is the cost of preferred equity?
- The capital structure for the Memphis Corporation is provided below. The company plans to maintain its debt structure in the future. If the firm has a 6% after-tax cost of debt, a 13.5% cost of preferred stock, and a 19% cost of common stock, what is the firm’s weighted cost of capital?

Capital Structure ($000)

Bonds $1,100

Preferred Stock $ 250

Common Stock $3,700

Solution Description

Please rate m