1.  The approximate before-tax cost of debt for a 10-year, 8 percent, $1,000 par value bond selling at $1,150 is?

2.The approximate after-tax cost of debt for a 20-year, 7 percent, $1,000 par value bond selling at $960 (assume a marginal tax rate of 40 percent) is ?

3.Nico Trading Corporation is considering issuing long-term debt. The debt would have a 30 year maturity and a 10 percent coupon rate. In order to sell the issue, the bonds must be underpriced at a discount of 5 percent of face value. In addition, the firm would have to pay flotation costs of 5 percent of face value. The firm's tax rate is 35 percent. Given this information, the after tax cost of debt for Nico Trading would be?

4.Tangshan Mining is considering issuing preferred stock. The preferred stock would have a par value of $75, and a 5.50 percent dividend. What is the cost of preferred stock for Tangshan if flotation costs would amount to 5.5 percent of par value?

5.A firm has a beta of 1.2. The market return equals 14 percent and the risk-free rate of return equals 6 percent. The estimated cost of common stock equity is?

6.A firm has common stock with a market price of $25 per share and an expected dividend of $2 per share at the end of the coming year. The growth rate in dividends has been 5 percent. The cost of the firm's common stock equity is?

7.A firm has common stock with a market price of $55 per share and an expected dividend of $2.81 per share at the end of the coming year. The dividends paid on the outstanding stock over the past five years are as follows:

 

The cost of the firm's common stock equity is?

1.  Given that the cost of common stock is 18 percent, dividends are $1.50 per share, and the price of the stock is $12.50 per share, what is the annual growth rate of dividends?

2.What would be the cost of new common stock equity for Tangshan Mining if the firm just paid a dividend of $4.25, the stock price is $55.00, dividends are expected to grow at 8.5 percent indefinitely, and flotation costs are $6.25 per share?

3.What would be the cost of retained earnings equity for Tangshan Mining if the expected return on U.S. Treasury Bills is 5.00%, the market risk premium is 10.00 percent, and the firm's beta is 1.3?

4. A firm has determined its cost of each source of capital and optimal capital structure, which is composed of the following sources and target market value proportions:

 

 

The weighted average cost of capital is?

5.A firm has determined its optimal capital structure which is composed of the following sources and target market value proportions.

 

 

Debt: The firm can sell a 12-year, $1,000 par value, 7 percent bond for $960. A flotation cost of

2 percent of the face value would be required in addition to the discount of $40.

Preferred Stock: The firm has determined it can issue preferred stock at $75 per share par value. The stock will pay a $10 annual dividend. The cost of issuing and selling the stock is $3 per share.

Common Stock: A firm's common stock is currently selling for $18 per share. The dividend expected to be paid at the end of the coming year is $1.74. Its dividend payments have been growing at a constant rate for the last four years. Four years ago, the dividend was $1.50. It is expected that to sell, a new common stock issue must be underpriced $1 per share in floatation costs. Additionally, the firm's marginal tax rate is 40 percent.

 

Determine the following:

The firm's before-tax cost of debt.

The firm's after-tax cost of debt.

The firm's cost of preferred stock.

The firm's cost of a new issue of common stock.

The firm's cost of retained earnings.

The weighted average cost of capital up to the point when retained earnings are exhausted.

The weighted average cost of capital after all retained earnings are exhausted.