Compute the cost of capital for the firm

Assignment Help Financial Management
Reference no: EM13911202

(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.

Reference no: EM13911202

Questions Cloud

How does an executive support system differ from a decision : How does an executive support system differ from a decision support system?
What is the catheterization labs profit : A new cardiac catheterization lab was constructed at Have a Heart Hospital. The investment for the lab was $950,000 in equipment costs and $50,000 in renovation costs. A desired return on investment is 12%. What is the catheterization labs profit?
Polaris must assign overhead costs to its products : Polaris must assign overhead costs to its products.
State the objective of a group support system : State the objective of a group support system (GSS) and identify three characteristics that distinguish it from a DSS.
Compute the cost of capital for the firm : (Individual or component costs of capital) Compute the cost of capital for the firm for the following: 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..
Activity based costing is only useful for manufacturing : Arctic Cat is a manufacturer. It is said that: Activity based costing is only useful for manufacturing companies. Is this a true statement? Explain.
Is this profitable investment if the discount rate : Suppose an initial investment of $100 will return $50/year for three years (assume the $50 is received each year at the end of the year). Is this a profitable investment if the discount rate is 20%?
What is the present value-cover college expenses : Beginning three months from now, you want to be able to withdraw $3,100 each quarter from your bank account to cover college expenses over the next four years. If the account pays .53 percent interest per quarter, how much do you need to have in your..
What are the components of a decision support system : What are the components of a decision support system?

Reviews

Write a Review

Financial Management Questions & Answers

  What is the price of treasury bill

What is the price of a U.S. Treasury bill with 100 days to maturity quoted at a discount yield of 1.40 percent? Assume a $1 million face value.

  Sales increase

Pierce Furnishings generated $4 million in sales during 2012, and its year-end total assets were $3.2 million. Also, at year-end 2012, current liabilities were $500,000, consisting of $200,000 of notes payable, $200,000 of accounts payable, and $100,..

  What is the profit or loss associated with copper

Landmark Coal operates a mine. During July, the company obtained 500 tons of ore, which yielded 250 pounds of gold and 62,500 pounds of copper. The joint cost related to the operation was $500,000. Gold sells for $325 per ounce and copper sells for $..

  Sequence of prices for a currency futures contract

Consider the following sequence of prices for a currency futures contract. Each contact involves 10,000 units of the foreign currency. The initial and maintenance margin requirements are USD 800 and USD 500, respectively.

  Bond equivalent and discount yields on this investment

The treasurer of a large corporation wants to invest $44 million in excess short-term cash in a particular money market investment. The prospectus quotes the instrument at a true yield of 3.56 percent; that is, the EAR for this investment is 3.56 per..

  What is the least you could pay to acquire a bill

A Treasury bill has a bid yield of 2.13% and an ask yield of 2.09%. The bill matures in 209 days. Assume a face value of $1,000. What is the least you could pay to acquire a bill?

  What is the nominal rate of return on these bonds

The outstanding bonds of Roy Thomas inc provide a real rate of return of 3.5%.the current rate of inflation is 2.1 %. What is the nominal rate of return on these bonds?

  Estimate the value of the leased fee

First-year NOI for a long-term net lease is expected to be $50,000. Rent is escalating at a rate of 3 percent per year, but there is a two-year period between adjustments. Thus, the income for years 1 and 2 will be $50,000, increasing to $50,000 (1+...

  Expected rate of return of both stocks using dividend growth

What are the required rates of returns on both stocks using the CAPM model? What are the expected rates of return of both stocks using the dividend growth model. Which stock would you recommend to purchase or sell? Why?

  Recommend buying or renting-rental costs-annual costs

Based on the following data, would you recommend buying or renting? Rental Costs- Annual costs- Annual rent $7,380, Insurance $145. Security deposit $ 650. - Buying Costs- Annual mortgage payments $9,800 ($9,575 is interest), Property taxes $ 1,780, ..

  What are the firms interest tax savings

(Computing interest tax savings) Dharma Supply has earnings before interest and taxes (EBIT) of $544000, interest expenses of $274000, and face a corporate tax rate of 34 percent.

  Total return of the portfolio reduced by trading costs

Suppose that every time a fund manager trades stock, transaction costs such as commissions and bid–ask spreads amount to .4% of the value of the trade. If the portfolio turnover rate is 50%, by how much is the total return of the portfolio reduced by..

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