Below is information regarding the capital structure of Micro Advantage Incorporated. On the basis of this information you are asked to respond to the following three questions: Required: 1. Micro Advantage issued a $5,650,000 par value, 20-year bond a year ago at 98 (i.e., 98% of par value) with a stated rate of 6%. Today, the bond is selling at 115 (i.e., 115% of par value). If the firm's tax bracket is 30%, what is the current after-tax cost of this debt? 2. Micro Advantage has $5,390,000 preferred stock outstanding that it sold for $23 per share. The preferred stock has a per share par value of $24 and pays a $3 dividend per year. The current market price is $30 per share. The firm's tax bracket is 30%. What is the after-tax cost of the preferred stock? 3. In addition to the bonds and preferred stock described in requirements 1 and 2, Micro Advantage has 78,000 shares of common stock outstanding that has a par value of $10 per share and a current market price of $160 per share. The expected after-tax market return on the firm's common equity is 20%. What is Micro Advantage's weighted-average cost of capital (WACC)?
Below is information regarding the capital structure of Micro Advantage Incorporated. On the basis of this information you are asked to respond to the following three questions: Required: 1. Micro Advantage issued a $5,650,000 par value, 20-year bond a year ago at 98 (i.e., 98% of par value) with a stated rate of 6%. Today, the bond is selling at 115 (i.e., 115% of par value). If the firm's tax bracket is 30%, what is the current after-tax cost of this debt? 2. Micro Advantage has $5,390,000 preferred stock outstanding that it sold for $23 per share. The preferred stock has a per share par value of $24 and pays a $3 dividend per year. The current market price is $30 per share. The firm's tax bracket is 30%. What is the after-tax cost of the preferred stock? 3. In addition to the bonds and preferred stock described in requirements 1 and 2, Micro Advantage has 78,000 shares of common stock outstanding that has a par value of $10 per share and a current market price of $160 per share. The expected after-tax market return on the firm's common equity is 20%. What is Micro Advantage's weighted-average cost of capital (WACC)?
Chapter12: The Cost Of Capital
Section: Chapter Questions
Problem 17P
Related questions
Question
PLEASE ANSWER QUESTIONS 1,2,& 3
Image formet not allow
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Principles of Accounting Volume 1
Accounting
ISBN:
9781947172685
Author:
OpenStax
Publisher:
OpenStax College
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Principles of Accounting Volume 1
Accounting
ISBN:
9781947172685
Author:
OpenStax
Publisher:
OpenStax College