- Barry Bank issued a 25-year, 3 percent semiannual bond seven years ago. The bond currently sells for 107 percent of its face value. The companyâ€™s tax rate is 21 percent.
- What is the pretax cost of debt?
- What is the after-tax cost of debt?
- Which is more relevant, the pretax or the after-tax cost of debt? Why?
- The Chole Corporationâ€™s common stock has a beta of .91. If the risk-free rate is 2.5 percent and the market risk premium is 6.75 percent, what is the companyâ€™s cost of equity capital?
- Freddyâ€™s Farm has an issue of preferred stock with a stated dividend of $3.82 that just sold for $94 per share. What is the bankâ€™s cost of preferred stock?
- Mahomes Manufacturing needs to raise $100 million to start a new project and will raise the money by selling new bonds. The company will generate no internal equity for the foreseeable future. The company has a target capital structure of 40 percent common stock, 5 percent preferred stock, and 55 percent debt. Flotation costs for issuing new common stock are 6 percent, for new preferred stock, 4 percent, and for new debt, 3 percent. What is the true initial cost figure the company should use when evaluating its project?
- Given the following information for Watson Power Co., find the WACC. Assume the companyâ€™s tax rate is 21 percent. Debt: 20,000 bonds with a 6.8 percent coupon outstanding, $1,000 par value, 20 years to maturity, selling for 95 percent of par; the bonds make semiannual payments.
Common stock: 1,025,000 shares outstanding, selling for $54 per share; the beta is 1.20.
Preferred 45,000 shares of 2.8 percent preferred stock outstanding, currently stock: selling for $60 per share. Assume par value is $90.
Market: 9 percent market risk premium and 2.2 percent risk-free rate.