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Take Test: Final Exam - BBA 3301-15M-6B16-S3, Financial . Individual or component costs of capital) Compute the cost of capital for the firm for the...

Take Test: Final Exam – BBA 3301-15M-6B16-S3, Financial ...
  1. Individual or component costs of capital) Compute the cost of capital for the firm for the following:

    1. A bond that has a $1,000 par value (face value) and a contract or coupon interest rate of 10.8 percent. Interest payments are $54.00 and are paid semiannually. The bonds have a current market value of $1,130 and will mature in 10 years. The firm's marginal tax rate is 34 percent.
    2. A new common stock issue that paid a $1.77 dividend last year. The firm's dividends are expected to continue to grow at 7.4 percent per year, forever. The price of the firm's common stock is now $27.61.
    3. A preferred stock that sells for $141, pays a dividend of 9.5 percent, and has a $100 par value.
    4. A bond selling to yield 11.4 percent where the firm's tax rate is 34 percent.


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Final exam.xlsx

1
Par value
Coupon rate
Price
Years
Semi annual Ytm
Annual YTM
Tax
After tax cos t of debt 2
$1,000
10.80%
$1,130
10
4.41%
8.82%
34%
5.82% Dividend last year
Growth
Price
Dividend next year
Cost 3...

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 (Individual or component costs of capital) Your firm is considering a new investment proposal and would like to calculate... View the full answer

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