Maschale Corp. wants to issue bonds with a zero coupon bond, a face value of $1,000, and 12 years to maturity

Maschale Corp. wants to issue bonds with a zero coupon bond, a face value of $1,000, and 12 years to maturity

answer:

a. Pre tax cost of debt = (F/PV)1/n – 1

= (1000/384)1/12 – 1

= 8.30%

After tax cost of debt = 8.30 (1-0.35)

= 5.40%

b. Cost of preferred stock = Dividend per share / Price per share

= $3.2/ 40

= 8%

c. Cost of common equity = D1/ P0 + g

= [4 x 1.05] / 30 + 0.05

= 19%

d. WACC = [Cost of debt x Weight of debt] + [Cost of preferred stock x Weight of preferred stock] + [Cost of equity x Weight of equity]

= [5.40 x 4/(4+5+6)] + [8 x 5/(4+5+6)] + [19 x 6/(4+5+6)]

= 11.71%

Add Comment
0 Answer(s)
  • Votes
  • Oldest

Your Answer

By posting your answer, you agree to the privacy policy and terms of service.