COST OF COMPONENTS OF CAPITAL

Compute the costs of capital for the firm for the following.

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a. A bond that has a 1,000 per value (face value) and a contract or coupon interest rate 10.5%. The bonds have a current market value of 1,128 and will mature in 10 years. The firms marginal tax rate is 34%.

 

b. A new common stock issue that paid a $1.83 dividend last year. The firm’s dividends are expected to continue to grow at 6.6% per year forever. The price of the firms common stock is now $27.82 .

 

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c. A preferred stock paying a 9.5% dividend on a $100 per value .

 

d. A bond selling to yield 11.3% where the firms tax rate is 34% 

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