rocedwrp
2021-08-20
a) The cost of capital before tax.
Given: A firm has 40000 shares whose current price is $80.75.
Those stockholders expect a return of
The firm has a 2 year loan of $900000 at
It has issued 12,500 bonds with a face value of 1000.
Time period for maturity is 15 years.
The semiannual interest rate is
The current price is $1090.
b) The cost of capital after tax.
Nola Robson
Skilled2021-08-21Added 94 answers
a) Calculation:
Substitute 40000 for shares, and $80.75 for Price of shares in Equation (I).
Calculate the total bond fund.
Substitute 12,500 for number of bonds, and $1090 for bond value in Equation (II).
Bond fund
Calculate the total fund.
Total fund
Calculate the cost of capital before tax.
Conclusion:
Therefore, the cost of capital before tax is,
b) Calculate the rate for the loan.
Rate
Calculate the interest rate on the bonds.
Rate
Rate
Calculate the cost of capital after tax.
Conclusion:
Therefore, the cost of capital after tax is,
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