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    dennis16's Avatar
    dennis16 Posts: 3, Reputation: 1
    New Member
     
    #1

    May 6, 2010, 12:28 PM
    but where did they get the $50 dollar value from?
    Calculating cost of debt: Jiminy's Cricket Farm issued a 30-year, 10 percent
    semi-annual bond 7 years aog. The bond currently sells for 108 percent of
    its face value. The company's tax rate is 30 percent. What is the pretax
    cost of debt?

    the books answer says its:
    P0 = $1,080 = $50(PVIFAR%,46) + $1,000(PVIFR%,46)
    R = 4.58%
    YTM = 2 × 4.58% = 9.16%

    but where did they get the $50 dollar value from?
    ArcSine's Avatar
    ArcSine Posts: 969, Reputation: 106
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    #2

    May 7, 2010, 04:36 AM
    The "...10%, semiannual..." part tells you that the issuer makes coupon payments that are 10% of the bond's face every year in total; and that such coupon payments are made every six months.

    Putting those two together means that every 6 months the issuer makes a coupon payment of 5% of the bond's face... or 50 bucks.
    dennis16's Avatar
    dennis16 Posts: 3, Reputation: 1
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    #3

    May 17, 2010, 12:08 PM
    please help now! Having a test today and i just cant figure this out.
    Dobson has a capital structure which consists of 60 percent long term debt and 40 percent common stock.

    * before-tax yield to maturity on the company bond is 8 percent
    * common stock ois expected to pay a $3.00 dividend at year end(D1= $3.00), and the dividend is expected to grow at a constant rate of 7 percent a year. The common stock currently sells for $60 a share.
    * a the company's tax rate is 40 percent.

    what is the company's weighted average cost of capital (wacc)
    dennis16's Avatar
    dennis16 Posts: 3, Reputation: 1
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    #4

    May 17, 2010, 12:10 PM
    help please
    Dobson has a capital structure which consists of 60 percent long term debt and 40 percent common stock.

    * before-tax yield to maturity on the company bond is 8 percent
    * common stock ois expected to pay a $3.00 dividend at year end(D1= $3.00), and the dividend is expected to grow at a constant rate of 7 percent a year. The common stock currently sells for $60 a share.
    * a the company's tax rate is 40 percent.

    what is the company's weighted average cost of capital (wacc)

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