Calculate its weighted average cost of capital

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Your firm is considering a new investment proposal and would like to calculate its weighted average cost of capital. To help in this, 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 11.7% that is paid semiannually. The bond is currently selling for a price of $1122 and will mature in 10years. The firm's tax rate is 34%.

b. If the firm's bonds are not frequently traded, how would you go about determining a cost of debt for this company?

c. A new common stock issue that paid a $1.76 dividend last year. The par value of the stock is $15, and the firm's dividends per share have grown at a rate of 8.3% per year. This growth rate is expected to continue into the foreseeable future. The price of this stock is now $27.97.

d. A preferred stock paying a 9.8% dividend on a $124 par value. The preferred shares are currently selling for $ 154.62.

e. A bond selling to yield 13.4% for the purchaser of the bond. The borrowing firm faces a tax rate of 34%.

Reference no: EM131332333

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