*Debt: 6,000 of 8 percent coupon bonds outstanding, $1,000 par value, 10 years to maturity, selling for 108 percent of p
Posted: Mon Nov 15, 2021 4:59 pm
*Debt: 6,000 of 8 percent coupon bonds outstanding, $1,000 par
value, 10 years to maturity, selling for 108 percent of par; the
bonds make annual payments.
*Preferred stock: 8000 shares of 7.2% preferred stock dividend
rate, selling at $90 per share.
*Common stock: 500,000 shares outstanding, selling for $70 per
share; the beta is 1.12.
*Market data: 10 percent market rate of return and 5 percent
risk-free rate, and the corporate tax rate of 30%.
What is the after-tax cost of
debt?
a. 4.8%
b. 6.868%
c. 7.2%
d. 8%
value, 10 years to maturity, selling for 108 percent of par; the
bonds make annual payments.
*Preferred stock: 8000 shares of 7.2% preferred stock dividend
rate, selling at $90 per share.
*Common stock: 500,000 shares outstanding, selling for $70 per
share; the beta is 1.12.
*Market data: 10 percent market rate of return and 5 percent
risk-free rate, and the corporate tax rate of 30%.
What is the after-tax cost of
debt?
a. 4.8%
b. 6.868%
c. 7.2%
d. 8%