Problem 1: A company issues 15-year, $1,000 par-value bonds, with a coupon rate of 6%. The bonds are sold for $619.70. The tax rate is 45%. Compute the cost of debt before taxes and after taxes
Problem 2: Suppose a company issues common stock to the public for $50 a share. The expected dividend is $3.50 per share and the growth in dividends is 9%. If the flotation cost is 12% of the issue proceeds, compute the cost of external equity, re
Problem 3: Calculate the cost of preferred stock (rPS) with the given information:
Par Value = $300
Current Price = $308
Flotation Cost = $17
Annual Dividend = 13% of Par
Problem 4: A company is investigating the effect on its cost of capital with respect to the tax rate. Suppose there is a capital structure of 30% debt, 20% preferred stock, and 80% common stock. The cost of financing with retained earnings is re = 13%, the cost of preferred stock financing is rPS = 6%, and the before-tax cost of debt is rd = 10%. Calculate the weighted average cost of capital (WACC) given a tax rate of 45%.