Compute the cost of capital for the KONOCO firm for the following:

1. A bond the has a $1.000 par value (face value) and a contract or coupon interest rate of 12%. The bond has a current market value of $1.325 and will mature in 10 years. The firm´s marginal tax rate is 35%.
2. A new common stock issue that pays a $1.9 dividend last year. The firm´s dividends are expected to continue to grow at 9% per year forever. The price of the firm´s common stock is now $29.5.
3. A preferred stock paying a 10% dividend on a $125 par value. The preferred shares are currently selling for 180 $.
4. A bond selling to yield 12% where the firm´s tax rate is 35%

Answer rating: 100% (QA)

Computing the Cost of Capital for KONOCO 1 Bond Use the formula for yield to maturity considering th... View the full answer