View the step-by-step solution to:

Compute the cost of the following: A bond selling to yield 7 percent after flotation costs, but before adjusting for the marginal corporate tax rate...

Compute the cost of the following:
A. A bond selling to yield 7 percent after flotation costs, but before adjusting for the marginal corporate tax rate of 34 percent. In other words, 7 percent is the rate that equates the net proceeds from the bond with the present value of the future cash flows (principle and interest)
B. A new common stock issue that paid a $1.05 dividend last year. The par value of the stock is $2.00 and the earnings per share have grown at a rate of 4 percent per year. This growth rate is expected to continue into the forseeable future. The company maintains a constant dividend-earnings ratio of 40 percent. The price of this stock is now $30, but 9 percent flotation costs are anticipated.
C. A bond that has a $ 1000 par value and a contract, or coupon, interest rate of 12 percent. A new issue would net the company 90 percent of the
$1,150 market value. The bonds mature in 15 years, the firm's average average tax rate is 30 percent, and its marginal tax rate is 34 percent.
D. A preferred stock paying a 6 percent dividend on a $100 par value. If a new issue is offered, the company can expect to net $85 per share.
E. Internal common equity when the current market price of the common stock is $35.00. The expected dividend this coming year should be $4.00, increasing thereafter at a 4 percent annual growth rate. The corporation's tax rate is 34 percent.

Recently Asked Questions

Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

-

Educational Resources
  • -

    Study Documents

    Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

    Browse Documents
  • -

    Question & Answers

    Get one-on-one homework help from our expert tutors—available online 24/7. Ask your own questions or browse existing Q&A threads. Satisfaction guaranteed!

    Ask a Question