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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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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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