**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, r_{e}.

**Problem 3**

Calculate the cost of preferred stock (r_{PS})

with the given information:

Par Value = $200

Current Price =

$208

Flotation Cost =

$16

Annual Dividend =

12% 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 20% debt, 10% preferred

stock, and 70% common stock. The cost of financing with retained earnings isr_{e} = 12%, the cost of preferred stock financing isr_{PS} = 7%, and the before-tax cost of debt is r_{d}

= 9%. Calculate the weighted average cost of capital (WACC) given a tax rate of

35%.

**Problem 5**

You have been hired as a consultant to

help estimate the cost of capital. You

have been provided with the following

data: r_{RF} = 4.10%; RP_{M}

= 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: D_{1} = $1.45; P_{0}

= $22.50; and g = 6.50% (constant).

Based on the DCF approach, what is the cost of common from retained

earnings?