You have just been hired to compute the cost of capital for debt, preferred stock, and common stock for the Mindflex Corporation.
1. Cost of debt: Now let's assume that? Mindflex's bonds are frequently traded. A Mindflex bond has a 1,00 par value (face value) and a coupon interest rate of 13.0 percent that is paid semiannually. The bonds are currently selling for 1,125 and will mature in 20 years. Mindflex's corporate tax rate is 34 percent.
2. Cost of preferred stock: Mindflex's preferred stock pays a dividend of 7.0 percent on a 125 par value. However, the market price at which the preferred shares could be sold is only 90.00. ?