Cost of Capital
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Part A. Micro Spinoffs, Inc. is issued a 20-year debt a year ago at par value with a coupon rate of 8%, paid annually. Today the debt is selling at $1,050. If the firm's tax bracket is 35%, what is its after-tax cost of debt?
Part B. Micro Spinoffs also has preferred stock outstanding. The stock pays a dividend of $4/share, and the stock sells for $40. What is the cost of the preferred stock?
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Solution Summary
The solution explains how to calculate the cost of debt and cost of preferred stock.
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Part A. Micro Spinoffs, Inc. is issued a 20-year debt a year ago at par value with a coupon rate of 8%, paid annually. Today the debt is selling at $1,050. If the firm's tax bracket is 35%, what is its after-tax cost of debt?
The cost of ...
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