Problem 1

A company issues 15-year, $1,000 par-value bonds, with a coupon rate
of 5%. The bonds are sold for $619.70. The tax rate is 30%. Compute the cost of
debt before taxes and after taxes.

Problem 2

Suppose a
company issues common stock to the public for $25 a share. The expected
dividend is $2.50 per share and the growth in dividends is 8%. If the flotation
cost is 10% 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 = $200

Current Price =

Flotation Cost =

Annual Dividend =
12% of Par

Problem 4

company is investigating the effect on its cost of capital with respect to the
tax rate. Suppose there is a capital structure of 20% debt, 10% preferred
stock, and 70% common stock. The cost of financing with retained earnings isre = 12%, the cost of preferred stock financing isrPS = 7%, and the before-tax cost of debt is rd
= 9%. Calculate the weighted average cost of capital (WACC) given a tax rate of

Problem 5

You have been hired as a consultant to
help estimate the cost of capital. You
have been provided with the following
data: rRF = 4.10%; RPM
= 5.25%; and b = 1.30. Based on the CAPM
approach, what is the cost of common from retained earnings?

Problem 6

A company is trying to estimate its cost
of capital. The following data is
provided: D1 = $1.45; P0
= $22.50; and g = 6.50% (constant).
Based on the DCF approach, what is the cost of common from retained