# Chapter_11_-_Moodle_Ready - Chapter 11 Problems 11-A....

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Chapter 11 Problems 11-A. Calculate the aftertax cost of debt under each of the following conditions. Yield Corporate Tax Rate a . 8.0% 18% b . 12.0% 34% c . 10.6% 15% 11-A. Solution: K d = Yield (1 – T) Yield (1 – T) Yield (1 – T) a. 8.0% (1 – .18) 6.56% b. 12.0% (1 – .34) 7.92% c. 10.6% (1 – .15) 9.01% S11-1

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11-B.Wallace Container Company issued \$100 par value preferred stock 12 years ago. The stock provided a 9 percent yield at the time of issue. The preferred stock is now selling for \$72. What is the current yield or cost of the preferred stock? (Disregard flotation costs.) 11-B. Solution: Wallace Container Company p p D \$9 Yield = 12.5% D \$72 = = S11-2
11-C.Murray Motor Company wants you to calculate its cost of common stock. During the next 12 months, the company expects to pay dividends (D 1 ) of \$2.50 per share, and the current price of its common stock is \$50 per share. The expected growth rate is 8 percent. a

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## This note was uploaded on 07/03/2011 for the course BUS 320 taught by Professor Sloan during the Summer '08 term at N.C. State.

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Chapter_11_-_Moodle_Ready - Chapter 11 Problems 11-A....

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