Purchase Solution

After-tax cost of debt

Not what you're looking for?

Ask Custom Question

Knowing this, I figured the following:
Micro Spinoffs also has preferred stock outstanding. The stock pays a dividend of $4 per share, and the stock sells for $40. What is the cost of preferred stock?

Companies can also sell preferred stock. This kind of stock pays a fixed dividend into perpetuity, so its "cost" can be calculated by r= div/Price. (or Price = div/r). This is the "cost" of the company for selling these shares of preferred stock.
r = DIV/P0 = $4/$40 = 0.10 = 10%

I need to find the following:

1. Suppose Micro Spinoffs's cost of equity is 12.0 percent. What is its WACC if equity is 50 percent, preferred stock is 20 percent, and debt is 30 percent of total capital?

also, this one as well:

2. Micro Spinoffs, Inc., issued 20-year debt a year ago at par value with a coupon rate of 8 percent, paid annually. Today, the debt is selling at $1,050. If the firm's tax bracket is 35 percent, what is its after-tax cost of debt?

Purchase this Solution

Solution Summary

Calculate the After-tax cost of debt

Solution Preview

Here first we need to calculate the After-tax cost of debt (I am attaching an excel sheet with the calculations)

WACC = Weight of Debt*After Tax Cost of Debt + (Weight of ...

Solution provided by:
Education
  • BA, Ain Shams University, Cairo Egypt
  • MBA, California State University, Sacramento
Recent Feedback
  • "ty i have more need help with"
  • "ty i have jmore i need help with"
  • "great help"
  • "excellent help"
  • "Very helpful and easy to understand."
Purchase this Solution


Free BrainMass Quizzes
MS Word 2010-Tricky Features

These questions are based on features of the previous word versions that were easy to figure out, but now seem more hidden to me.

IPOs

This Quiz is compiled of questions that pertain to IPOs (Initial Public Offerings)

Writing Business Plans

This quiz will test your understanding of how to write good business plans, the usual components of a good plan, purposes, terms, and writing style tips.

Change and Resistance within Organizations

This quiz intended to help students understand change and resistance in organizations

Team Development Strategies

This quiz will assess your knowledge of team-building processes, learning styles, and leadership methods. Team development is essential to creating and maintaining high performing teams.