1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
Serggg [28]
3 years ago
7

​(Individual or component costs of​ capital) Compute the cost of capital for the firm for the​ following: a. A bond that has a ​

$1 comma 000 par value​ (face value) and a contract or coupon interest rate of 11.4 percent. Interest payments are ​$57.00 and are paid semiannually. The bonds have a current market value of ​$1 comma 120 and will mature in 10 years. The​ firm's marginal tax rate is 34 percet. b. A new common stock issue that paid a ​$1.82 dividend last year. The​ firm's dividends are expected to continue to grow at 6.5 percent per​ year, forever. The price of the​ firm's common stock is now ​$27.22. c. A preferred stock that sells for ​$142​, pays a dividend of 8.8 ​percent, and has a​ $100 par value. d. A bond selling to yield 11.9 percent where the​ firm's tax rate is 34 percent.
Business
1 answer:
Irina-Kira [14]3 years ago
5 0

Answer:

The requirement is to calculate the cost of each finance instrument whose details were given in the question:

after tax cost of debt is 6.28%

cost of equity is 13.63%

cost of preferred stock is 6.20%

after tax cost of debt is 7.85%

Explanation:

1. after cost of debt:

The pretax cost of debt can be determined using the rate formula in excel:

=rate(nper,pmt,-pv,fv)

nper is the number of coupon payments the bond would make i.e 10*2=20

pmt is given as $57

pv is the current price of the bond $1120

fv is the par value of $1000

=rate(20,57,-1120,1000)=4.76%(semi-annually)

=9.52% annually

After cost of debt =9.52%*(1-0.34)=6.28%

2. cost of equity

share price=Do*(1+g)/r-g

r is the cost of equity

r=Do*(1+g)/share price+g

r=$1.82*(1+6.5%)/$27.22+6.5%

r=(1.94/27.22)+6.5%=13.63%

3. cost of preferred  share=dividend/market price

dividend=8.8%*$100=$8.8

market price is $142

cost of preferred share=$8.8/$142=6.20%

4.after tax cost of debt

pretax cost of debt is 11.9%

tax rate is 34%

after tax cost of debt =11.9%*(1-0.34)=7.85%

You might be interested in
Carlotta Rodriguez purchased six bushes for $19.27 each, a porch swing for $88.22, and a gas grill for $321.77. She must pay the
puteri [66]
19.27+88.22+321.77=429.26

4.5+2=6.5

429.26 x 1.065 = 457.1619

Answer = $457.16
5 0
3 years ago
Read 2 more answers
How much time will be needed for 35,000 to grow to 44,622.09 if deposited at 7% compounded quarterly
Vlad [161]

Answer:

It will take 14 quarters (3.5 years) to reach $44,622.09 from $35,000 at an interest rate of 7% compounded quarterly.

Explanation:

Giving the following information:

PV= 35,000

FV= 44,622.09

i= 0.07/4= 0.0175

We need to calculate the number of quarters required to reach the objective. We will use the following formula:

n= ln(FV/PV) / ln(1+i)

n= ln(44,622.09/35,000) / ln(1.0175)

n= 14

It will take 14 quarters (3.5 years) to reach $44,622.09 from $35,000 at an interest rate of 7% compounded quarterly.

8 0
3 years ago
you hear about an economy with no change in the number of workers or capital. yet, production increases. what idea does this ill
olasank [31]

Answer:

It might be because of an increase in efficiency in the workforce or advances in technology. Hope it helps :)

Explanation:

8 0
3 years ago
List four wan technologies that are carried over the pstn.
oee [108]
There is actually a lot of wan technologies that are carried over the pstn. But the first thing we have to do, is to know what does the pstn means. The pstn means Public Switched Telephone Network. Though they have some similarities, the atm and the wan are different machines.
8 0
2 years ago
To have an effective marketing exchange process, you must make sure it involves a customer, a provider, a product, and a:
Travka [436]

Answer:

Transaction

Explanation:

Marketing exchange process refers to a process wherein two or more individuals buy or sell a good. Exchange refers to the consideration which is paid in return for the product i.e money.

For any exchange to take place it is essential that the good is transacted.

Customer would be the one who requires the product or the ones who create a want.

A Provider is the one who satisfies a want or say the one who makes the product available.

Product is the bundle of utilities or attributes which satisfies a want.

Transaction is effected when the buyer gets the product and the seller gets paid for the product.

7 0
3 years ago
Other questions:
  • When does a cash dividend become a legal​ liability?
    11·1 answer
  • For each of the following statements, indicate whether it is true, false, or uncertain and explain why. Average total cost is al
    13·1 answer
  • Suppose that Karen deposits $500 into her checking account at the bank. The reserve requirement for Karen's bank is 12%. Assume
    6·1 answer
  • You have $22,000 to invest in a stock portfolio. Your choices are Stock X with an expected return of 11 percent and Stock Y with
    11·1 answer
  • Your project requires new software. The IT department is going to research options to identify the best solution to work with yo
    11·1 answer
  • Jacques has been asked to calculate the cost of goods manufactured for Sully Enterprises for fiscal year 2015. He has accumulate
    6·1 answer
  • Riverwood Properties bought three lots in a subdivision for a? lump-sum price. An independent appraiser valued the lots as?
    12·1 answer
  • How is my real friend please subscribe to my mom channel please​
    7·1 answer
  • PLEASE HELP!! ILL GIVE 10 POINTS AND BRAINLIEST
    12·1 answer
  • For each of the transactions in APA-1, indicate how the operating activities and investing activities sections of the cash flow
    7·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!