Task: Cost of debt and preferred stock
Question 1. Brandeis Mining Co. has 10-year 8% annual coupon bonds outstanding. The bonds have a current market price of 885.84 and a face value (FV) of 1,000. If Brandeis's marginal tax rate is 35%, what is its relevant after-tax component cost of debt, rd (1-T)?
Question 2. Brandeis is considering issuing shares of preferred stock. The preferred stock would have a face value of 100 per share and pay a fixed annual dividend of 7.80 per share. The flotation cost associated with issuing this preferred stock is 6% of each share's face value. What is Brandeis' cost of preferred stock (rp)?