What is the after-tax cost of debt

Assignment Help Corporate Finance
Reference no: EM13196439

You are provided the following information on a company. The total market value is $40 million. The company's capital structure, shown here, is considered to be optimal.

                                                                                                            Market Value

Bonds, $1000 par, 6% coupon, 5% YTM                                           $10,000,000

Preferred Stock, 4%, $100 par, 100,000 shares @ $60 per share         $6,000,000

Common Stock, 100,000 shares @ $220 per share                            $22,000,000

a. What is the after-tax cost of debt?  (assume the company's effective tax rate = 40%)

b. Assuming a $4 dividend paid annually, what is the required return for preferred shareholders (i.e. component cost of preferred stock)?  (assume floatation costs = $0.00)

c. Assuming the risk-free rate is 1%, the expected return on the stock market is 7%, and the company's beta is 1.0, what is the required return for common stockholders (i.e., component cost of common stock)?

d.  What is the company's weighted average cost of capital (WACC)?

Reference no: EM13196439

Previous Q& A

  What will the radius of this larger sphere be

A jeweler has three small solid spheres made of silver, of radius 5 mm, 2 mm, and 6 mm. He decides to melt these down and make just one sphere out of them. What will the radius of this larger sphere be?

  What is the probability that student selected failed

At university , all first-year students must take chemistry and math. Suppose 15% fail chemistry, 12% fail math, and 5% fail both. Suppose a first-year student is selected at random. What is the probability that student selected failed at least on..

  Write an equation to model this cost of production

A medical prosthetics company charges a $350 setup fee and $5.50 per piece to make a plastic brace for patients with sprained wrists. Write an equation to model this cost of production, and calculate the cost of producing 3000 braces?

  Find the speed of each train

the speed of train a is 20 mph slower than the speed of train b. train a travels 220 miles in the same time it takes train b to travel 320 miles. find the speed of each train.

  Measurements and observations of the cardiovascular system

Describe how the presence of the heart attack might affect routine measurements and observations of the cardiovascular system.

  Find the velocity of the rock after one second

Find the velocity of the rock after one second.

  Define larger rf value in a soluvent of medum polarity

which compound do you expect to have a larger Rf value in a soluvent of medum polarity (such as ethyl acetate): acetominophen or phenacetin?

  Simulation of healthcare experiences

Can you tell me about Isys debriefing software for simulation of healthcare experiences?

  Explain what is the partial pressure of co

A mixture of 0.140 moles C is reacted with 0.117 moles of O2 in a sealed, 10.0 L vessel at 500 K, producing a mixture of CO and CO2.

  How the choice of calling plan should depend

A consumer is trying to decide between two long-distance calling plans. The first charges a flat rate of 10¢ ($0.10) per minute,

Reviews

Write a Review

 

Similar Q& A

  What was the average cost per share

Calculate missing amounts in the comparative balance sheets and What was the average cost per share of the common stock purchased for the treasury during the month?

  Calculate the approximate risk premium for common stocks

Suppose that the consensus required rate of return on common stocks is 14%. In addition, you read in Fortune that expected rate of inflation is 5% & estimated long-term real growth rate is 3%.

  Find what is the irr of the investment

Evaluate what is the NPV of the investment when the cost of capital is 5% and what is the IRR of the investment?

  Determine the nominal rate of return

A bond actual rate of return is 3.85% for a time period when the inflation rate was 1.97%. Determine the actual nominal rate of return?

  Compute the present value

For each of the following, compute the present value. Round your answers to 2 decimal places.

  Loss control approaches to reduce the risk of injury

How could loss control approaches be used to decrease the risk of injury to creation firm employees & a medical transporter by car?

  Negative aspects of financial statement

Analyzing the positive and negative aspects of financial statement - Negative aspects of Kevin and Stacy's current financial status.

  Explain using capital budgeting and capital structure

Suppose you work for local hospital you and your colleagues require deciding on whether to purchase new machine for the clinic.

  What is the minimum amount of robin salary

Robin is working overseas on a temporary assignment beginning on March 1 of this year through January 31 of next year. Her salary is $10,000 per month while overseas, but only $8,000 per month for January and February of this year.

  Invest dollars in the mexican stock market

Determine your expected dollar return from investing dollars in the Mexican stock market for the next 90 days.

  Analysis of the cash flow statement

What can creditors, investors, and other users learn from an analysis of the cash flow statement? Why is the statement of cash flows a useful document?

  Finding monthly deposited amount

Mr. Moore will be thirty-five years at the end of month & he wishes to stop working in 25 years. He plans to invest in a mutual fund receiving 7.5% yearly return compounded monthly.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd