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Amol Srivastava
Amol Srivastava , Accountant
Category: Finance
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Experience:  More than 4years + of industry experience ,CFA level2 cleared, Chartered Accountant from India
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(Individual or component costs of capital) Compute the cost

Customer Question

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

c. A bond that has a $1,000 par value and a contract or coupon interest rate of 12 percent. A new issue would net the company 90 percent of the $1,150 market value. The bonds mature in 20 years, the firm’s average tax rate is 30 percent, and its marginal tax rate is 34 percent.


d. A preferred stock paying a 7 percent dividend on a $100 par value. If a new issue is
offered, the company can expect to net $85 per share. Internal common equity where the current market price of the common stock is $38.
The expected dividend this forthcoming year should be $3, increasing thereafter at a
4 percent annual growth rate. The corporation’s tax rate is 34 percent.

Submitted: 7 years ago.
Category: Finance
Expert:  Amol Srivastava replied 7 years ago.
Hi

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Amol
Customer: replied 7 years ago.

.

Expert:  Amol Srivastava replied 7 years ago.
e is just the cost of equity capital. It is part of d only. Remove e and you are good to go.

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