The Shocking Corporation is subject to a company tax rate of30%.
The company asks you to calculate the after tax cost of each ofthe following sources of funds:
(a) Ordinary $1 shares expect the next dividend payment to be$0.102 per share which is expected to grow at a rate of 2% inperpetuity. The current market price is$ 1.20.
(b) What is the cost of $100,000 in retained earnings?
(c) 10% preference shares of $2 with a current market price of$2.50.
(d) 9% debentures with an issued value of $100,redeemable infour years at $100 with a current market price of $90.90.
The Shocking Corporation is subject to a company tax rate of30%.
The company asks you to calculate the after tax cost of each ofthe following sources of funds:
(a) Ordinary $1 shares expect the next dividend payment to be$0.102 per share which is expected to grow at a rate of 2% inperpetuity. The current market price is$ 1.20.
(b) What is the cost of $100,000 in retained earnings?
(c) 10% preference shares of $2 with a current market price of$2.50.
(d) 9% debentures with an issued value of $100,redeemable infour years at $100 with a current market price of $90.90.
Related questions
The Saunders Investment Bank has the following financing outstanding.
| Debt: | 120,000 bonds with a coupon rate of 8 percent and a current price quote of 110; the bonds have 20 years to maturity. 290,000 zero coupon bonds with a price quote of 17.5 and 30 years until maturity. Assume semiannual compounding.
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