Individual or component costs of capital) Compute the cost of capital for the firm for the following:
- 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.
- 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.
- A preferred stock that sells for $141, pays a dividend of 9.5 percent, and has a $100 par value.
- A bond selling to yield 11.4 percent where the firm's tax rate is 34 percent.
This question was asked on Jul 19, 2016 and answered on Jul 19, 2016 for the course BBA 3301 at Columbia Southern University, Orange Beach.
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