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# 1. A bond has a \$1,000 par value (face value) and a contract

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1. A bond has a \$1,000 par value (face value) and a contract or coupon interior rate of 8%. A new issue would have a flotation cost of 5% of the market value. The bonds mature in 10 years. The firm’s average tax rate is 28% and its marginal tax rate is 39%. The current price is \$1100. What is the after tax cost of debt?
2. A new common stock issue paid a \$1.50 dividend last year. The par value of the stock is \$25, and earnings per share have grown at a rate of 3% per year. This growth rate is expected to continue into the foreseeable future. The company maintains a constant dividend/earnings ratio of 40%. The price of this stock is now \$30, but 4% flotation costs are anticipated. What is the cost of new common equity?
3. Internal common equity where the current market price of the common stock is \$45.50. The expected dividend this coming year should be \$4.00, increasing thereafter at a 6% annual growth rate. The corporation’s tax rate is 34%. What is the cost of common equity?
4. A preferred stock paying a 10% dividend on a \$100 par value. If a new issue is offered, flotation costs will be 10% of the current price of \$115. What is the cost of preferred equity?
5. The capital structure for the Shelby Corporation is provided below. The company plans to maintain its debt structure in the future. If the firm has a 5% after-tax cost of debt, a 12% cost of preferred stock, and a 20% cost of common stock, what is the firm’s weighted cost of capital?
Bonds \$2,500,000
Preferred Stock \$ 350,000
Common Stock \$4,350,000
6. A bond that has a \$1,000 par value (face value) and a contract or coupon interior rate of 12%. A new issue would have a flotation cost of 6% of the market value. The bonds mature in 10 years. The firm’s average tax rate is 30% and its marginal tax rate is 34%.The current price is \$989. What is after tax cost of debt?
7. A new common stock issue that paid a \$1.75 dividend last year. The par value of the stock is \$15, and earnings per share have grown at a rate of 8% per year. This growth rate is expected to continue into the foreseeable future. The company maintains a constant dividend/earnings ratio of 30%. The price of this stock is now \$28, but 5% flotation costs are anticipated. What is the cost of new common equity?
8. Internal common equity where the current market price of the common stock is \$43.50. The expected dividend this coming year should be \$3.25, increasing thereafter at a 7% annual growth rate. The corporation’s tax rate is 34%. What is the cost of common equity
9. A preferred stock paying a 10% dividend on a \$125 par value. If a new issue is offered, flotation costs will be 12% of the current price of \$150. What is the cost of preferred equity?
10. The capital structure for the Memphis Corporation is provided below. The company plans to maintain its debt structure in the future. If the firm has a 6% after-tax cost of debt, a 13.5% cost of preferred stock, and a 19% cost of common stock, what is the firm’s weighted cost of capital?
Capital Structure (\$000)
Bonds \$1,100
Preferred Stock \$ 250
Common Stock \$3,700
Submitted: 5 years ago.
Category: Homework
Expert:  Jabi replied 5 years ago.
Hello dear client,

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Expert:  Jabi replied 5 years ago.
Hello dear client,

I have already started work on your questions. Please let me know, whether it is acceptable to you or not?

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Customer: replied 5 years ago.
I have a little bit of time. Is it possible to get help atleast on the first 5 by tomorrow and then I can work the others by your examples. I just need to have a clear understanding by Thursday.
Expert:  Jabi replied 5 years ago.
Hello dear client,

You don't need to worry about anything, i have completed solution to question 1, i will complete all the questions within one to two hours time for you.

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Customer: replied 5 years ago.
Okay, thank you..I really appreciate the help I am really stressing
Expert:  Jabi replied 5 years ago.
Hello dear client,

Please hit ACCEPT BUTTON so that i get credit for all my efforts and time.

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Customer: replied 5 years ago.

Looks good, but will you show me the formula or way that I can work the problems as well?

Expert:  Jabi replied 5 years ago.
Hello dear client,

I will show you the formulas in the end, you don't need to worry about anything.

Please hit ACCEPT BUTTON so that i can post the next solutions for you :)

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Customer: replied 5 years ago.
Quick question..when I click accept answer it is saying that I am confirming to pay an additional amount. Do I have to pay more than the \$60.00 I already paid?
Expert:  Jabi replied 5 years ago.
Hello dear client,

Yes you have to pay additional for these questions.

Thank you for your understanding, i am almost done with the rest of the questions.

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Customer: replied 5 years ago.
How much more?
Expert:  Jabi replied 5 years ago.
I will post all the answers, six solutions are still left, just make an additional \$60 so that i can get credit for all my efforts and time.

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Customer: replied 5 years ago.
I do not have that kind of funds right now. Can I pay an additional 30.00?
Expert:  Jabi replied 5 years ago.
Hello dear client,

Thank you :)

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Expert:  Jabi replied 5 years ago.
Hello dear client,

I will post the rest of the solutions later as i have to go now, thank you for your patience.

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Customer: replied 5 years ago.

okay, thanks!

Customer: replied 5 years ago.
Hi Jabi, just checking on the status of the remaining questions.
Expert:  Jabi replied 5 years ago.
Hello dear client,

I will post all the remaining answers pretty soon for you :)

-Jabi
Expert:  Jabi replied 5 years ago.