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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