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  • Cost of Capital 13,14

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    Dondon Elkashef
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    The cost of capital for the company is 16.1%, calculated as the next dividend of $3 divided by the net proceeds of $27 at a growth rate of 5%. Additionally, the before-tax cost of debt for a 20-year bond with a $1,000 par value, 2% flotation costs, 9% annual coupon interest, and issue price of $980 is calculated to be 9.45%, and the after-tax cost of debt is 5.67%.

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    Cost of Capital

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    The cost of capital for the company is 16.1%, calculated as the next dividend of $3 divided by the net proceeds of $27 at a growth rate of 5%. Additionally, the before-tax cost of debt for a 20-year bond with a $1,000 par value, 2% flotation costs, 9% annual coupon interest, and issue price of $980 is calculated to be 9.45%, and the after-tax cost of debt is 5.67%.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
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    11 views1 page

    Cost of Capital 13,14

    Uploaded by

    Dondon Elkashef
    The cost of capital for the company is 16.1%, calculated as the next dividend of $3 divided by the net proceeds of $27 at a growth rate of 5%. Additionally, the before-tax cost of debt for a 20-year bond with a $1,000 par value, 2% flotation costs, 9% annual coupon interest, and issue price of $980 is calculated to be 9.45%, and the after-tax cost of debt is 5.67%.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
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    of 1

    10-13 Cost of Capital = Next Div / Net Proceeds + Growth Rate

    = 3 / 27( 30 x 90%) + 5% = 16.1%

    10-14 N= 20

    FV= 1000$ t = 40%

    Finding the Cost of Debt


    Par Value

    $ (1,000.00)

    Flotation Costs (% of Par)

    2.00%

    Flotation Costs ($)

    (20.00)

    Issue Price

    980.00

    Net Proceeds Price

    960.00

    Coupon Interest (%)


    Coupon Interest ($)

    9.00%
    $

    (90.00)

    Time to maturity
    Before-tax cost of debt

    20
    9.45%

    Kd = YTM (1-t)
    Kd = 9.45% (1-.40) = 5.67%

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