Fin 500 week 8 homework

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: D₁ = $1.45; P₀
= $22.50; and g = 6.50% (constant).
Based on the DCF approach, what is the cost of common from retained
earnings?