Below is information regarding the capital structure of Micro Advantage Inc. On the basis of this information you are asked to respond to the following three questions:

Required:

1. Micro Advantage issued a $5,950,000 par value, 19-year bond a year ago at 96 (i.e., 96% of par value) with a stated rate of 7%. Today, the bond is selling at 110 (i.e., 110% of par value). If the firm’s tax bracket is 40%, what is the current after-tax cost of this r debt?

2. Micro Advantage has $5,950,000 preferred stock outstanding that it sold for $25 per share. The preferred stock has a per share par value of $22 and pays a $2 dividend per year. The current market price is $26 per share. The firm’s tax bracket is 29%. What is the r after-tax cost of the preferred stock?

3. In addition to the bonds and preferred stock described in requirements 1 and 2, Micro Advantage has 71,000 shares of common r stock outstanding that has a par value of $10 per share and a current market price of $160 per share. The expected after-tax market r return on the firm’s common equity is 16%. What is Micro Advantage’s weighted-average cost of capital (WACC)?

Answer rating: 100% (QA)

1 Bond interest expense before tax 5950000 7 416500 Income tax savings on bond interest ex... View the full answer