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Compute the cost of capital for each of the following sources of financing a A bond that has a $1000 par value face value and a contract or coupon interest rate of 11 percent Interest payments

Compute the cost of capital for each of the following sources of financing: a. A bond that has a $1,000 par value (face value) and a contract or coupon interest rate of 11 percent. Interest payments are $55.00 and are paid semiannually. The bond has a current market value of $1,000 and will mature in 20 years. The firm s marginal tax rate is 30 percent. b. A new common stock issue by a firm 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 $30.00. c. A preferred stock that sells for $125, pays a 10 percent annual dividend, and has a $100 par value. d. A bond whose yield to maturity (based on the bond s market price) is 10 percent where the firm s tax rate is 34 percent.
 
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Apr 30 2020 View more View Less

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