Answer Happy

(Individual or component costs of capital) Compute the cost of capital for the firm for the following: a. Currently bonds with a similar credit rating and maturity as the firm's outstanding debt are selling to yield 7.94 percent while the borrowing firm's corporate tax rate is 34 percent. b. Common stock for a firm that paid a $1.02 dividend last year. The dividends are expected to grow at a rate of 4.3 percent per year into the foreseeable future. The price of this stock is now $25.55. c. A bond that has a $1,000 par value and a coupon interest rate of 11.2 percent with interest paid semiannually. A new issue would sell for $1,145 per bond and mature in 20 years. The firm's tax rate is 34 percent. d. A preferred stock paying a dividend of 6.8 percent on a $101 par value. If a new issue is offered, the shares would sell for $83.84 per share.