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# Question

Your firm is considering a new investment proposal and would like to calculate the weighted average cost of capital. to help in this, 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 11.3% that is paid semiannually. The bond is currently selling for a price of \$1126 and will mature in 10 years. The firm;s tax rate is 34%. The after-tax cost of debt from the firm is _________%. (Round to two decimal places).

3. A new common stock issue that paid \$1.77 dividend last year. The par value of the stock is \$15, and the firm's dividends per share have grown at a rate of 7.8% per year. The growth rate is expected to continue onto the foreseeable future. The price of this stock is now 27.33. The cost of common equity for the firm is _______%.(Round to two decimal places)

4. A preferred stock paying a 10.9% dividend on a \$129 par value. The preferred shares are currently selling for \$153.68. The cost of preferred stock for the firm is____________%.(Round to two decimal places)

5. A bond selling to yield 12.6% for the purchaser of the bond. The borrowing firm faces a tax rate of 34%. The after-tax cost of debt for the firm is _________%. (Round to two decimal places)

## Solution 5 (1 Ratings )

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