Question

(Individual or component costs of capia 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 10.8 percent. Interest payments are $54.00 and are paid semiannually The bonds have a current market value of $1,125 and will mature in 10 years. The firm's marginal tax rate is 34 percet. b. Anew common stock issue that paid a $1.83 dividend last year. The firm's dividends are expected to continue to grow at 6.4 percent per year, forever. The price of the firm's common stock is now $27.16 c. A preferred stock that sells for $148, pays a dividend of 8.3 percent, and has a $100 par value d. Abond selling to yield 12.8 percent where the firm's tax rate is 34 percent. %. (Round to two decimal places) a. The after-tax cost of debt is

Answer 1

a)

The excel formula for after-tax cost of debt is:

=(RATE(10*2,54,-1125,1000)*2)*(1-0.34)

=5.87%

b)

=((1.83*1.064)/27.16)+0.064

=13.57%

c)

=(8.3%*100)/148

=5.61%

d)

After tax cost of debt =12.8%*(1-0.34) = 8.45%