# Compute the cost of capital for the firm for the following

Finance questions

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Question 1 (Individual or component costs of capital) Compute the cost of capital for the firm for the following:

“a. A bond that has a \$1000 par value (face value) and a contract or coupon interest rate of 10.5%. The bonds have a current market value of \$1,128 and will mature in 10 years. The firm’s marginal tax rate is 34%
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b. A new common stock issue that paid a \$1.76 dividend last year. The firm’s dividends are expected to continue to grow at 7.6% per year forever. The price of the firm’s common stock is now \$27.07.
c. A preferred stock paying a 9.9% dividend on a \$141 par value.
d. A bond selling to yield 12.4% where the firm’s tax rate is 34%.

2). Your firm is considering a new investment proposal and would like to calculate its weighted average cost of capital. To help in this, compute the cost of capital for the firm for the following:

a. A bond that has a \$1000 par value (face value) and a contract or coupon interest rate of 12.2%. The bonds is currently selling for a price of \$1,126 and will mature in 10 years. The firm’s tax rate is 34%
b.If the firm’s bonds are not frequently traded, how would you go about determining a cost of debt for this company?
d. A preferred stock paying a 10.6% dividend on a \$126 par value. The preferred shares are currently selling for \$151.74.
e. A bond selling to yield 13.6% for the purchaser of the bond. The borrowing firm faces a tax rate of 34%.

Could you provide the calculation for each steps?