How would a firm use its calculated weighted average cost of capital of 12.5 percent?

Assume that a firm currently views its capital structure as optimal. It has $3,000,000 of par value 9 percent bonds outstanding, with an annual before-tax yield to maturity of 8 percent required on a new issue. The bonds currently sell for $115 per $100 par value. The firm has 46,000 shares of common stock outstanding, currently selling for $40 per share. The firm expects to pay a $3.50 dividend per share one year from now, and is experiencing a 4.5 percent growth rate in dividends, which it expects to continue indefinitely. The firm's marginal tax rate is 40 percent, and it expects to be able to finance all new projects with debt and internal common equity. What is the firm's after-tax cost of debt?

Assume that a firm currently views its capital structure as optimal. It has $3,000,000 of par value 9 percent bonds outstanding, with an annual before-tax yield to maturity of 8 percent required on a new issue. The bonds currently sell for $115 per $100 par value. The firm has 46,000 shares of common stock outstanding, currently selling for $40 per share. The firm expects to pay a $3.50 dividend per share one year from now, and is experiencing a 4.5 percent growth rate in dividends, which it expects to continue indefinitely. The firm's marginal tax rate is 40 percent, and it expects to be able to finance all new projects with debt and internal common equity. What is the firm's after-tax cost of common stock?

Using the same data from the previous question, assume that a firm currently views its capital structure as optimal. It has $3,000,000 of par value 9 percent bonds outstanding, with an annual before-tax yield to maturity of 8 percent required on a new issue. The bonds currently sell for $115 per $100 par value. The firm has 46,000 shares of common stock outstanding, currently selling for $40 per share. The firm expects to pay a $3.50 dividend per share one year from now, and is experiencing a 4.5 percent growth rate in dividends, which it expects to continue indefinitely. The firm's marginal tax rate is 40 percent, and it expects to be able to finance all new projects with debt and internal common equity. What is the proportion of debt in the firm's capital structure?

Using the same data from the previous question, assume that a firm currently views its capital structure as optimal. It has $3,000,000 of par value 9 percent bonds outstanding, with an annual before-tax yield to maturity of 8 percent required on a new issue. The bonds currently sell for $115 per $100 par value. The firm has 46,000 shares of common stock outstanding, currently selling for $40 per share. The firm expects to pay a $3.50 dividend per share one year from now, and is experiencing a 4.5 percent growth rate in dividends, which it expects to continue indefinitely. The firm's marginal tax rate is 40 percent, and it expects to be able to finance all new projects with debt and internal common equity. What is the firm's weighted average cost of capital?

The current market price of an existing Harley-Davidson bond is $1,150. The bond has a $1,000 par value, pays interest annually at a 10 percent coupon rate, and matures in 20 years. Assume that Harley-Davidson's marginal tax rate is 40 percent. What is Harley-Davidson's after-tax cost of debt if a new bond issue will net $1,050 per bond after flotation costs?

Assume that Harley-Davidson has an issue of preferred stock that pays an annual dividend of $3.00 per share and is currently selling for $25.00 per share. If Harley-Davidson wishes to raise new capital by selling additional shares of preferred stock, it will net $22.50 per share. The firm's marginal tax rate is 34 percent. What is the cost to the firm of financing with new preferred stock?

Assume that a firm has a target financing mix of 30 percent debt and 70 percent common equity. The before-tax cost of debt is 10 percent. The estimated cost of internal equity is 14 percent and the cost of new common equity is 17 percent. The firm has a marginal tax rate of 34 percent and expects to have $2,100,000 of profit available for reinvestment in the firm. If the firm can meet all of its financing needs with debt and internally generated equity, what is the firm's weighted average cost of capital?

What is the cost of capital for a firm that uses 40 percent debt at an after-tax cost of 8 percent and 60 percent common stock at a 14 percent cost?

A corporation has $5 million of debt outstanding with a coupon rate of 12 percent. Currently the yield to maturity on these bonds is 14 percent. If the firm's tax rate is 40 percent, what is after-tax cost of debt to the corporation?

A firm's preferred stock is currently selling for $40.00, and pays a perpetual annual dividend of $5 per share. Underwriters of a new issue of preferred stock would charge $5 per share in flotation costs. What is the cost of the new preferred stock if the firm's tax rate is 30%?

The following table summarizes information about the capital structure of a firm. It has a marginal tax rate of 40%. What is the firm's weighted average cost of capital?

A corporation is examining two capital investments. Management wants to analyze the riskiness of the projects in terms of their effect on the riskiness of an investor's diversified portfolio. The beta for project A is 1.05 and for project B is .80. The expected return for a diversified portfolio is 16%. The risk-free rate is 7 percent. Project A is expected to return 15.7 percent and project B is expected to return 17.5 percent. What is the cost of capital for projects A and B? Should the projects be accepted?