3 10 points Octopus Transit has a $1,000 par value bond outstanding with 20 years to maturity. The bond carries an annual interest payment of $108, payable semiannually, and is currently selling for $1,112. Octopus is in a 30 percent tax bracket. The firm wishes to know what the aftertax cost of a new bond issue is likely to be. The yield to maturity on the new issue will be the same as the yield to maturity on the old issue because the risk and maturity date will be similar. a. Compute the yield to maturity on the old issue and use this as the yield for the new issue. (Do not round intermediate calculations. Round the final answer to 2 decimal places.) Yield on new issue 9.7 % b. Make the appropriate tax adjustment to determine the aftertax cost of debt. (Do not round intermediate calculations. Round the final answer to 3 decimal places.) Cost of debt 6.79 % 10 4 points Compute the required values under the following circumstances: (Do not round intermediate calculations. Round the final answers to 2 decimal places.) a. D = $6.60; P = $76; g = 6%; F = $4.00. Ke 14.68 % 15.17 % Kn b. D1 = $0.35; P = $36; g = 10%; F = $1.50. Ke Kn 10.97 % c. E1 (earnings at the end of period one) = $10; payout ratio equals 25 percent; P = $40; g = 9.0%; F = $2.5. D1 $ 2.50 15.25 % Ke Kn 5 10 points Sam's Fine Garments sells jackets and sports coats in suburban malls throughout the country. Business has been good, as indicated by the eight-year growth in earnings per share. The earnings have grown from $1.00 to $1.59. (Use a Financial calculator to arrive at the answers.) a. Determine the compound annual rate of growth in earnings (n = 8). Use Appendix A. (Round the final answer to 2 decimal places.) Compound annual rate of growth 5.97 % b. Based on the growth rate determined in part a, project earnings for next year (E1). (Round compound annual rate of growth to 2 decimal places. Round the final answer to 2 decimal places.) E $ 1.69 c. Assume the dividend payout ratio is 40 percent. Compute D1. (Round intermediate calculations to 2 decimal places. Round the final answer to 2 decimal places.) D $ 0.68 d. The current price of the stock is $18. Using the growth rate (g) from part a and D1 from part c, compute Ke (Round compound annual rate of growth to 2 decimal places. Round the final answer to 2 decimal places.) Ke 9.75 % e. If the flotation cost is $2.75, compute the cost of new common stock (Kn). (Round compound annual rate of growth to 2 decimal places. Round intermediate calculations to 2 decimal places. Round the final answer to 2 decimal places.) Kn %