The Zephyr corporation is contemplating a new investment to be financed 33 percent from debt. The firm could sell new $1000 par value bonds at a net price of $925. The coupon interest rate is 14 percent and the bonds would mature in 13 years. If the company is in a 35 percent tax bracket, what is the after- tax cost of capital to Zephyr for bonds? Round to two decimal places.
The common stock for the Bestsold Corporation sells for $61. If a new issue is sold, the flotation costs are estimated to be 9 percent. The company pays 80 percent of its earnings in dividends, and a $4.80 dividend was recently paid. Earnings per share 5 years ago were $4.00. Earnings are expected to continue to grow at the same annual rate in the future as during the past 5 years. The firm's marginal tax rate is 36 percent. Calculate the cost of internal common equity and external common equity.
Sincere Stationary Corporation needs to raise $650,000 to improve its manufacturing plant. It has decided to issue a $1000 par value bond with an annual coupon rate of 15 percent and a maturity of 11 years. The investors require a rate of return of 11 percent.
- Compute the market value of the bonds.
- What will the net price be if flotation costs are 11 percent of the market price?
- How many bonds will the firm have to issue to receive the needed funds?
- What is the firm's after tax cost of debt if its average tax rate is 25 percent ands its marginal tax rate is 32 percent?
The capital structure for the Carion Corporation is provided here. The company plans to maintain its debt structure in the future. If the firm has an after- tax cost of debt of 5.8 percent, a cost of preferred stock of 11.2 percent, and a cost of common stock of 16.4 percent, what is the firms weighted average of cost of capital?
Bonds $1,142
Preferred stock $274
Common stock $3,559
Total =$4975