Individual or component costs of capital)

Individual or component costs of capital) Compute the cost of capital for the firm for the following:

  1. A bond that has a $1,000 par value (face value) and a contract or coupon interest rate of 10.8 percent. Interest payments are $54.00 and are paid semiannually. The bonds have a current market value of $1,130 and will mature in 15 years. The firm’s marginal tax rate is 34 percent.
  2. A new common stock issue that paid a $1.77 dividend last year. The firm’s dividends are expected to continue to grow at 8.4 percent per year, forever. The price of the firm’s common stock is now $27.61.
  3. A preferred stock that sells for $141, pays a dividend of 8.5 percent, and has a $100 par value.
  4. A bond selling to yield 10.4 percent where the firm’s tax rate is 34 percent.
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Individual or component costs of capital)
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