Your firm is considering a new investment proposal and would like to calculate its weighted average cost of capital. To help this, compute the cost of capital for the firm for the following: a. A bond that has a $1,000 par value (face value) and a contract or a coupon interest rate of 12.2%. The bond is currently selling for a price of $1,129 and will mature in 10 years. The firm's tax rate is 34%. b. If the firm's bonds are not frequently traded how would you go about determining a cost of debt for this company? c. A new common stock issue that paid $1.78 dividend last year.
The par value of the stock is $16 and the firm's dividends per share have grown at a rate of 8.9% per year. The growth rate is expected to continue in the foreseeable future. The price of the stock now is $27.56. d. A preferred stock paying a 13.1% dividend on $122 par value. The preferred shares are currently selling for $150.55. e. A bond selling to yield 12.1% for the purchaser of the bond. The borrowing firm faces a tax rate of 34%.