Cost of debt. A company has outstanding 20-year, noncallable bonds with a face value of $1,000, an 11% annual coupon, and a market price of $1,294.54. If the company was to issue new debt, what would be a reasonable estimate of the interest rate on that debt?
Tax rate 40%
Maturity 20
Par (face) value $1,000.00
Coupon (Annual) 11%
Bond Price $1,294.54
YTM = rd = Find the cost of debt
Cost of debt after taxes. If the company’s tax rate is 40%, what is its after-tax cost of debt?
A-T debt cost = rd(1 – T) = Adjust it for taxes
A company’s preferred stock currently trades at $80 per share and pays a $6 annual dividend per share. Ignoring flotation costs, what is the firm's cost of preferred stock?
Preferred stock price $80
Dividend per share $6
rp = Find cost of preferred stock