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-11. The return provided by Treasury bonds is considered as risk-free return and provides a basis to compare the return offered by corporate bonds. Refer to Figure 14.3, which shows yields to maturity for corporate bonds for different maturities and default ratings. Calculate the spread to Treasury for a BBB-rated bond for two years and for seven years. Why do the bonds with same credit rating offer different spread to Treasury for different periods? Estimating the Cost of Individual Sources of Capital 14-3. (Computing individual or component costs of capital) Compute the cost of capitalfar each of the following sources of financing: a. A bond that has a $1,000 par value (face value) and a contract or coupon interst of 11 percent. Interest payments are $55.00 and are paid semiannually. The bood ts a current market value of $1,000 and will mature in 20 years. The firm's mangit tax rate is 30 percent. b. A new common stock issue by a firm that paid a $1.80 dividend last year. The firi dividends are expected to continue to grow at 7 percent per year forever. The post the firm's common stock is now $30.00. c. A preferred stock that sells for $125, pays a 10 percent annual dividend, and hyd $100 par value. d. A bond whose yield to maturity (based on the bond's market price) is 10 perent where the firm's tax rate is 34 percent. 15. (Computing individual or component costs of capital) You have just been hired to compute the cost of capital for debt, preferred stock, and common stock for the Mindflex Corporation. a. Cost of debt: Because Mindflex's bonds do not trade very frequently, you have decided to use 7 percent as your cost of debt, which is the yield to maturity on a portfolio of bonds with a credit rating and maturity similar to those of Mindflex's outstanding debt. In addition, Mindflex faces a corporate tax rate of 34 percent. b. Cost of common equity: Mindflex's common stock paid a $1.30 dividend last year. In addition. Mindflex's dividends are growing at a rate of 4 percent per year, and this growth rate is expected to continue into the foreseeable future. The price of this stock is currently $30. c. Cost of debt: Now let's assume that Mindflex's bonds are frequently traded. A Mindflex bond has a $1,000 par value (face value) and a coupon interest rate of 13 percent that is paid semiannually. The bonds are currently selling for $1,125 and will mature in 20 years. Mindflex's corporate tax rate is 34 percent. d. Cost of preferred stock: Mindflex's preferred stock pays an 8 percent dividend on a \$125 par value. However, the market price at which the preferred shares could be sold is only $90