Question

Please answer all three. Thank you.

lowa Corn Cooperative Corp. ("ICCC") grows and distributes corn to food manufacturers. ICCC has some bonds outstanding with 13 years to maturity, are trading at $1,043.25 per bond with a $1,000 face value, and the company has 350,000 of these bonds outstanding. The bonds pay interest annually based on an 7 25% coupon interest rate ICCC is planning to issue $30 million of new preferred stock, which will have a par value of $150.00 per share, dividends per share of $15.25, and per-share flotation costs of $7.50 per share. The company has a marginal income tax rate of 25%. Calculate to 4 decimal places. What is ICCC's Pre-Tax Cost of Debt? After-Tax Cost of Debt? 6.7236% and 4.5048% 7.2500% and 5.4376% 6.7401% and 6.7401% 6.7401% and 5.0551% Question 12 8.55 pts lowa Corn Cooperative Corp. (CCC grows and distributes corn to food manufacturers, ICCC has some bonds outstanding with 13 years to maturity, are trading at $1.043.25 per bond with a $1,000 face value, and the company has 350,000 of these bonds outstanding. The bonds pay interest annually based on an 7.25% coupon interest rate, ICCC is planning to issue $30 million of new preferred stock, which will have a par value of $150.00 per share, dividends per share of $15.25, and per-share flotation costs of $7.50 per share. The company has a marginal income tax rate of 25% Calculate to a decimal places. What is Icec's Pre-Tax Cost of the New Preferred Stock? After-Tax Cost of the new Preferred Stock? 11.0647% and 11.0647% 11.0647 and 7.1921%

Answer 1

Ques-11)

Face Value of Bond = $1000

Annual Coupon payment = $1000*7.25%

= $72.5

No of Periods or No of Coupon payments = 13 years

Current price of Bond = $1043.25

Calculating the Rate of YTM or Pre-Tax Cost of Debt using EXCEL FUNCTON:-

13 72.5 No of Payments Payment Amount Face Value (Future Value) Current Price (Present Value) 1000 -1043.25 Rate 6.7401% Rate Function- #=RATE(G3, 64, 66, 65,0)

So, Pre-Tax Cost of Debt = 6.7401%

- After-Tax cost of Debt = Pre-Tax Cost of Debt*(1-Tax rate)

6.7401%*(1-0.25)

= 5.0551%

Option 4

Ques-12)

Calculating the Cost of Preferred Stock(Kp):-

$Kp = \frac{Annual Dividend}{Price - Flotation cost}$

$Kp = \frac{15.25}{150-7.50}$

Kp = 10.7018%

So, Pre-tax cost of preferred Stock is 10.7018%

Cost of Preferred Stock does not take into Tax effect into Consdiration.

thus, Pre-tax and post tax prefered cost are same as 10.7018%

Option 4

Ques-13)

Option 1 and 2

WACC is calculated by taking into consideration all types of cost including Long-term Debt, Bonds, Preferred Stock, Equity or any other debts.

Since, WACC considers ll cost, Option 3 and 4 are incoorect.

WACc is the cost of capital that firm must earn all satisfy each category of capital. It is the minimum return earned on total assets and minimum dollar earned of Free cash flow each year.