Compute the cost of the following:
a. A bond that has 1,000 par value (face value) and a contract or coupon interest rate of 11 percent. A new issue would have a floatation cost of 5 percent of the $1,140 market value. The bonds mature in 9 years. The firm's average tax rate is 30 percent and its marginal tax rate is 36 percent.
b. A new common stock issue that paid a $1.60 dividend last year. The par value of the stock is $15, and earnings per share have grown at a rate of 9 percent per year. This growth rate is expected to continue into the foreseeable future. The company maintains a constant? dividend-earnings ratio of 30 percent. The price of this stock is now $23?, but 6 percent flotation costs are anticipated.
c. Internal common equity when the current market price of the common stock is $46. The expected dividend this coming year should be $3.30?, increasing thereafter at an annual growth rate of 9 percent. The?corporation's tax rate is 36 percent.
d. A preferred stock paying a dividend of 9 percent on a $120 par value. If a new issue is? offered, flotation costs will be 12 percent of the current price of ?$179.
e. A bond selling to yield 12 percent after flotation? costs, but before adjusting for the marginal corporate tax rate of 36 percent. In other? words, 12 percent is the rate that equates the net proceeds from the bond with the present value of the future cash flows? (principal and? interest).
a. What is the firm's after-tax cost of debt on the bond?
b. What is the cost of external common equity?
c. What is the cost of internal common equity?
d. What is the cost of capital for the preferred stock?
e. What is the after-tax cost of debt on the bond?