(Solved by Humans)-Aaron's Rentals has 45,000 shares of common stock outstanding at
Question
Aaron's Rentals has 45,000 shares of common stock outstanding at a market price of $27 a share. The common stock just paid a $1.10 annual dividend and has a growth rate of 3.2 percent. There are 10,000 shares of 5.5 percent preferred stock outstanding at a market price of $48 a share. The preferred stock has a par value of $100. The outstanding bonds mature in 11 years, have a total face value of $800,000, a face value per bond of $1,000, and a market price of $987.60 each. The bonds pay 7.5 percent interest, semiannually. The tax rate is 35 percent.?
1. ?What are the pre-tax cost of debt and after-tax cost of debt?
2. ?What are the capital structure weights for common stock and debt?
3. ?What is the firm's weighted average cost of capital?
1. What are the pre-tax cost of debt and after-tax cost of debt?
Bonds year to maturity=11
Face value=$1000
Price=$987.6
Interest rate=7.5%
Tax rate=35%
Interest=7.5%*1000= $75
Pre -tax cost of...
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