LL Incorporateds currently outstanding 6 percent coupon bond

LL Incorporated’s currently outstanding 6 percent coupon bonds have a yield to maturity of 6 percent. LL believes it could sell new bonds that would provide a similar yield to maturity. If its marginal tax rate is 33 percent, what is LL’s after-tax cost of debt?

Bouchard Company\'s stock sells for $21 per share, its last dividend (D0) was $1.00, and its growth rate is a constant 4 percent. What is its cost of common stock, r_s? Express your answer in percentage (without the % sign) and round it to two decimal places.
(i.e., 12.54 for 0.1254)

Solution

1.

LL\'s After tax debt = Before tax cost od debt (1-tax rate)

=6(1-.33)

=4.02

2.Cost of common stock

We know that,

PO=D1/K-g

21=1(1.04)/k-.04

21=1.04/k-.04

21k-.84=1.04

21k=1.04+.84

k=8.95

So Cost of common stock is 8.95%