- +91-141-2973478
- info@tutorsglobe.com

Computing the cost of debt before taxes and after taxes

**Problem 1**

A company issues 15-year, $1,000 par-value bonds, with a coupon rate of 5%. The bonds are sold for $619.70. The tax rate is 30%. Compute the cost of debt before taxes and after taxes.

**Problem 2**

Suppose a company issues common stock to the public for $25 a share. The expected dividend is $2.50 per share and the growth in dividends is 8%. If the flotation cost is 10% of the issue proceeds, compute the cost of external equity, re.

**Problem 3**

Calculate the cost of preferred stock (rPS) with the given information:

Par Value = $200

Current Price = $208

Flotation Cost = $16

Annual Dividend = 12% of Par

**Problem 4**

A company is investigating the effect on its cost of capital with respect to the tax rate. Suppose there is a capital structure of 20% debt, 10% preferred stock, and 70% common stock. The cost of financing with retained earnings is re = 12%, the cost of preferred stock financing is rPS = 7%, and the before-tax cost of debt is rd = 9%. Calculate the weighted average cost of capital (WACC) given a tax rate of 35%.

18,76,764

Questions

Asked

21,311

Experts

9,67,568

Questions

Answered

Start Excelling in your courses, Ask an Expert and get answers for your homework and assignments!!

Submit Assignment2015 © Tutors Globe. All rights reserved.

## Q : Current growth rate-average price-earnings ratio

What is the industry average price-earnings ratio. What is price-earning ration for Reagan Inc. Is this the relationship you would expect between the two ratios.