a. A $1,000 par value bond with a market price of $940 and a coupon interest...
a. A $1,000 par value bond with a market price of $940 and a coupon interest rate of 7 percent. Flotation costs for a new issue would be approximately 8 percent. The bonds mature in 8 years and the corporate tax rate is 35 percent.
b. A preferred stock selling for $103 with an annual dividend payment of $8.The flotation cost will be $7 per share. The company's marginal tax rate is 30 percent.
c. Retained earnings totaling $4.8 million. The price of the common stock is $71 pershare, and dividend per share was $8.24 last year. The dividend is not expected to change in the future.
d. New common stock for which the most recent dividend was $2.83. The company's dividends per share should continue to increase at a growth rate of 7 percent into the indefinite future. The market price of the stock is currently $47 however, flotation costs of $6 per share are expected if the new stock is issued.
Homework Answers
| a) | Net price realizable after flotation costs = 940-1000*8% = | 860 |
| [Flotation rate has been applied on face value] | ||
| Coupon rate = 7% (assumed to be annual payment) | ||
| n = 8 years | ||
| YTM (before tax cost of debt) using an online calculator = | 9.58% | |
| After tax cost of debt = 9.58%*(1-35%) = | 6.23% | |
| b) | Cost of preferred stock = 8/(103-7) = | 8.33% |
| c) | Cost of retained earnings = 8.24/71 = | 11.61% |
| d) | Cost of new common stock = 2.83*1.07/(47-6)+0.07 = | 14.39% |
Add Answer to:
a. A $1,000 par value bond with a market price of $940 and a coupon interest...
a. A bond that has $1 000 par value (face value) and a contract or coupon...
a. A bond that has $1 000 par value (face value) and a contract or coupon interest rate of 6 percent. A new issue would have a floatation cost of 8 percent of the $ 1,110 market value. The bonds mature in 8 years. The firm's average tax rate is 30 percent and its marginal tax rate is 36 percent. b. A new common stock issue that paid a $ 1.40 dividend last year. The par value of the stock...
Question 10 A company is going to issue a $1,000 par value bond that pays a...
Question 10 A company is going to issue a $1,000 par value bond that pays a 7% annual coupon. The company expects the market price to be $942 for the 20-year bond. The expected flotation cost per bond is 4.5%, and the firm is in the 34% tax bracket. Compute the firm's after-tax cost of new debt . 7.57% 8.02% 5.00% 5.30% Question 15 Asian Trading Company just paid a dividend of $5 per share. The dividend is expected to...
(Individual or component costs of capital) Compute the cost of the following: a. A bond that...
(Individual
or component costs of
capital)
Compute the cost of the following:
a. 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 8 percent of the $1,145 market value. The bonds
mature in 14 years. The firm's average tax rate is 30 percent and
its marginal tax rate is 34 percent.
b. A new common stock issue that paid a $1.40...
(Individual or component costs of capital) Compute the cost of the following: a. A bond that...
(Individual or component costs of capital) Compute the cost of the following: a. A bond that has $1,000 par value (face value) and a contract or coupon interest rate of 7 percent. A new issue would have a floatation cost of 7 percent of the $1,135 market value. The bonds mature in 7 years. The firm's average tax rate is 30 percent and its marginal tax rate is 38 percent. b. A new common stock issue that paid a $1.50...
a. A bond that has $1,000 par value (ace value) and a contract or coupon nderest...
a. A bond that has $1,000 par value (ace value) and a contract or coupon nderest ate of 11 percent years. The tem's average tax rate is 30 percent and its marginal tax rale is 37 percent b. A new conmon stock issue that paid a $1.50 dividend last year The par value of the slock is $15, and earnings per share have grown at a rate of 8 percent per yea Thes growth rate ts expected to contnue rto...
(Individual or component costs of capital)Compute the cost of the following: a. A bond that has...
(Individual or component costs of capital)Compute the cost of the following: a. A bond that has $1,000 par value (face value) and a contract or coupon interest rate of 6 percent. A new issue would have a floatation cost of 6 percent of the $1,140 market value. The bonds mature in 7 years. The firm's average tax rate is 30 percent and its marginal tax rate is 37 percent. b. A new common stock issue that paid a $1.50 dividend...
(Individual or component costs of capital) Compute the cost of the following:a. A bond that has...
(Individual or component costs of capital) Compute the cost of the following:a. A bond that has $1 comma 0001,000 par value (face value) and a contract or coupon interest rate of 66 percent. A new issue would have a floatation cost of 77 percent of the $1 comma 1251,125 market value. The bonds mature in 99 years. The firm's average tax rate is 30 percent and its marginal tax rate is 3232 percent.b. A new common stock issue that paid...
eBook Problem 21-02 Sun Instruments expects to issue new stock at $36 a share with estimated flotation costs of 8 percent of the market price. The company currently pays a $1.90 cash dividend and has...
eBook Problem 21-02 Sun Instruments expects to issue new stock at $36 a share with estimated flotation costs of 8 percent of the market price. The company currently pays a $1.90 cash dividend and has a 7 percent growth rate. What are the costs of retained earnings and new common stock? Round your answers to two decimal places. Costs of retained earnings Cost of new common stock:
eBook Problem 21-02 Sun Instruments expects to issue new stock at $36 a...
Cost of capital Edna Recording Studios, Inc., reported earnings available to common stock of $5,000,000 last...
Cost of capital Edna Recording Studios, Inc., reported earnings available to common stock of $5,000,000 last year. From those earnings, the company paid a dividend of $1.28 on each of its 1,000,000 common shares outstanding. The capital structure of the company includes 25%debt, 10% preferred stock, and 65% common stock. It is taxed at a rate of 40%. a. If the market price of the common stock is $36 and dividends are expected to grow at a rate of 7%per...
Cost of capital Edna Recording Studios, Inc., reported earnings available to common stock of $4,4...
This is a sample question:
Cost of capital Edna Recording Studios, Inc., reported earnings available to common stock of $4,400,000 last year. From those earnings, the company paid a dividend of $1.19 on each of its 1,000,000 common shares outstanding. The capital structure of the company includes 35% debt, 25% preferred stock, and 40% common stock. t is taxed at a rate of 27%. a. If the market price of the common stock is $31 and dividends are expected to...
(Individual
or component costs of
capital)
Compute the cost of the following:
a. 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 8 percent of the $1,145 market value. The bonds
mature in 14 years. The firm's average tax rate is 30 percent and
its marginal tax rate is 34 percent.
b. A new common stock issue that paid a $1.40...
a. A bond that has $1,000 par value (ace value) and a contract or coupon nderest ate of 11 percent years. The tem's average tax rate is 30 percent and its marginal tax rale is 37 percent b. A new conmon stock issue that paid a $1.50 dividend last year The par value of the slock is $15, and earnings per share have grown at a rate of 8 percent per yea Thes growth rate ts expected to contnue rto...
eBook Problem 21-02 Sun Instruments expects to issue new stock at $36 a share with estimated flotation costs of 8 percent of the market price. The company currently pays a $1.90 cash dividend and has a 7 percent growth rate. What are the costs of retained earnings and new common stock? Round your answers to two decimal places. Costs of retained earnings Cost of new common stock:
eBook Problem 21-02 Sun Instruments expects to issue new stock at $36 a...
This is a sample question:
Cost of capital Edna Recording Studios, Inc., reported earnings available to common stock of $4,400,000 last year. From those earnings, the company paid a dividend of $1.19 on each of its 1,000,000 common shares outstanding. The capital structure of the company includes 35% debt, 25% preferred stock, and 40% common stock. t is taxed at a rate of 27%. a. If the market price of the common stock is $31 and dividends are expected to...
Most questions answered within 3 hours.
-
3) What are the typical social structures in a global city?
asked 33 minutes ago -
Luther Corporation
Consolidated Balance Sheet
December 31, 2019 and 2018 (in $ millions)
Assets
2019
2018...
asked 35 minutes ago -
(Expected rate of return and risk) Carter Inc. is evaluating a
security. Calculate the investment’s expected...
asked 3 hours ago -
What specific indicators can point to lack of progress for
African Americans in American society?
asked 4 hours ago -
1-The Electrons in a beam are moving at 2.7×108 m/s in an
electric field of 15000...
asked 4 hours ago -
A gas tank is a vertical cylinder. It has a radius of 1m, a
height of...
asked 5 hours ago -
Accent Software faces the following conditions. All of these
support Accent’s use of a market-penetration pricing...
asked 5 hours ago -
A mathematically inclined friend emails you the following
instructions: "Meet me in the cafeteria the first...
asked 6 hours ago -
A monopoly sells in two countries . The demand curves in the two
countries are p1...
asked 6 hours ago -
A .15kg rubber ball is bounced off a wall. Before hitting the
wall, the ball moves...
asked 7 hours ago -
A manufacturing company preparing to build a new plant is
considering three potential locations for it....
asked 7 hours ago -
B. If compound Y has approximately the same values of solubility
in toluene as compound X,...
asked 8 hours ago