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(Individual or component costs of capital) Compute the cost of capital for the firm for the following:
a. A bond that has a $1000 par value (face value) and a contract or coupon interest rate of 11 percent. Interest payments are $55.00 and are paid semi annualy. The bonds have a current market value of $1125 and will mature in 10 years. The firm's marginal tax rate is 34 percent.
b. A new common stock issue that paid a $1.80 dividend last year. The firm's dividends are expected to continue to grow at 7 percent per year, forever. The price of the firm's common stock is now $27.50.
c. A preffered stock that sells for $125, pays a 9 percent dividend, and has a $100 par value.
d. A bond selling to yield 12 percent where the firm's tax rate is 34 percent.
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Economists expect the inflation rate to be 1.5 percent for the coming year and the following year, and then after Year 2 inflation will settle at a constant rate greater than 1.5 percent. The yield is the same on one-year bonds and two-year bonds; th..
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On January 1, 2008, PWC awarded stock options to two of its top managers, Price and Waterhouse. Price received options to purchase 25,000 shares of PWC $1 par common stock at an exercise price of $10/share. Waterhouse received 15,000 options to purch..
Kingston, Inc. management is considering purchasing a new machine at a cost of $4,408,526. They expect this equipment to produce cash flows of $757,564, $830,902, $1,026,664, $1,059,322, $1,217,327, and $1,289,435 over the next six years.
You observe that the current interest rate on short-term U.S. Treasury bills is 4.23 percent. You also read in the newspaper that the GDP deflator, which is a common macroeconomic indicator used by market analysts to gauge the inflation rate, current..
McKenna Sports Authority is getting ready to produce a new line of gold clubs by investing $1.85 million. The investment will result in additional cash flows of $525,000, $817,500, and $1,230,000 over the next three years. What is the payback period ..
You purchase a house that costs $625,000 with a 8%, 30-year mortgage. In order to avoid PMI insurance, you decide to follow a conforming mortgage by making a down payment of 20%. 1. What is your monthly payment? 2. Amortize the first and second payme..
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