4 finance Questions


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1. Taxes and the cost of debt: A firm has a pre-tax cost of debt of 11.20% and faces a 34% tax rate. The firm’s after tax cost of debt is


2. Current cost of a bond: You are analyzing the cost of debt for a firm. You know that the firm’s 14-year maturity, 9.75 percent coupon bonds are selling at a price of $1,111.68. The bonds pay interest semiannually. If these bonds are the only debt outstanding for the firm, what is the after-tax cost of debt for this firm if the firm is in the 30 percent marginal tax rate?


3. WACC for a firm: Capital Co. has a capital structure that is financed, based on current market values, with 31 percent debt, 6 percent preferred shares, and 63 percent common shares. If the return offered to the investors for each of those sources is 11 percent, 11 percent, and 16 percent for debt, preferred shares, and common shares, respectively, then what is Capital’s after-tax WACC? Assume that the firm’s marginal tax rate is 40 percent.


4. Cost of preferred stock: Kresler Autos has preferred shares outstanding that pay annual dividends of $9 and the current price of the shares is $81. What is the after-tax cost of new preferred shares for Kresler if the flotation (issuance) costs for a new issue of preferred are 5 percent?



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