P9-2

Cost of debt using both methods Currently, Warren Industries can sell 15-year,
$1,000-par-value bonds paying annual interest at a 12% coupon rate. As a result of
current interest rates, the bonds can be sold for $1,010 each; flotation costs of $30
per bond will be incurred in this process. The firm is in the 40% tax bracket.
a. Find the net proceeds from sale of the bond, Nd.
b. Show the cash flows from the firm’s point of view over the maturity of the
bond.
c. Calculate the before-tax and after-tax costs of debt
d. Use the approximation formula to estimate the before-tax and after-tax costs
of debt.
e. Compare and contrast the costs of debt calculated in parts c and d. Which
approach do you prefer? Why?

Jawaban P9-2
a. Net proceeds from sale of the bond, Nd
Nd = $ 1.010 – $ 30
Nd = $ 980

b. The cash flows associated with Warren Industries bond issue are as follows:
End of years (s) Cash Flow
0 $ 980
1 – 15 – $ 120
15 – $ 1.000

c. Calculate the before-tax and after-tax costs of debt

Before tax costs of debt
Net proceeds from sale of bond $ 980
Coupon payment $ 120
Years to maturity 15
Par value (principal) $ 1.000
Before-tax cost of debt 12,30%
Before-tax cost of debt =Rate(15,–120,980,–
1000) using Excel

After Tax costs of debt

ri = rd x (1 – T)
ri = 12,30% x ( 1 – 0,40 )
ri = 0,0738 or 7,38%

d. Use the approximation formula to estimate the before-tax and after-tax costs
of debt.
Before Tax costs of debt
 Approximating the Cost
$ 1.000−N d
I+
n
rd =
N d + $ .1 .000
2
$ 1.000−$ 980
$ 120+
15
rd =
$ 980+ $ .1 .000
2
$ 121,33
rd =
$ 990
rd = 0,12256 or 12,256%
After Tax costs of debt
ri = rd x (1 – T)
ri = 12,27% x ( 1 – 0,40 )
ri = 0,0735 or 7,34%
e. Kedua metode dapat dipertimbangkan karena hasilnya menunjukan
perbedaan hasil yang sedikit hanya perbedaan angka dibelakang koma saja,
akan tetapi menurut saya lebih akurat dengan menggunakan metode pertama
karena menggunakan perhitungan dengan alat hitung keuangan.

P9-10
Cost of common stock equity Ross Textiles wishes to measure its cost of common
stock equity. The firm’s stock is currently selling for $57.50. The firm expects to pay
a $3.40 dividend at the end of the year (2013). The dividends for the past 5 years are
shown in the following table.
Year Dividend
2012 $ 3.10
2011 $ 2.92
2010 $ 2.60
2009 $ 2.30
2008 $ 2.12
After underpricing and flotation costs, the firm expects to net $52 per share on a new
issue.
a. Determine the growth rate of dividends from 2008 to 2012.
b. Determine the net proceeds, Nn, that the firm will actually receive.
c. Using the constant-growth valuation model, determine the cost of retained
earnings,rr.
d. Using the constant-growth valuation model, determine the cost of new
common stock, rn
Jawaban P9-10
a. Determine the growth rate of dividends from 2008 to 2012.
g = ¿ – 1 x 100%

= (1,46)0,25 – 1 x 100%

= 9,9 %
b. Determine the net proceeds, Nn, that the firm will actually receive.
Nn = $ 52
c. Using the constant-growth valuation model determine the cost of retained
earnings,rr.
rr = ($ 3.40 / $ 57.50) + 0,099
= 0,059 + 0,099
= 0,158
= 15,8%
d. Using the constant-growth valuation model determine the cost of new
common stock
rn = ($ 3.40 / $ 52) + 0,099
= 0,065 + 0,099
= 0,164
= 16,4%

P9-16
Cost of capital Edna Recording Studios, Inc., reported earnings available to
common stock of $4,200,000 last year. From those earnings, the company paid a
dividend of $1.26 on each of its 1,000,000 common shares outstanding. The capital
structure of the company includes 40% debt, 10% preferred stock, and 50% common
stock. It is taxed at a rate of 40%.
a. If the market price of the common stock is $40 and dividends are expected to
grow at a rate of 6% per year for the foreseeable future, what is the
company’s cost of retained earnings financing?
b. If underpricing and flotation costs on new shares of common stock amount to
$7.00 per share, what is the company’s cost of new common stock financing?
c. The company can issue $2.00 dividend preferred stock for a market price of
$25.00 per share. Flotation costs would amount to $3.00 per share. What is
the cost of preferred stock financing?
d. The company can issue $1,000-par-value, 10% coupon, 5-year bonds that
can be sold for $1,200 each. Flotation costs would amount to $25.00 per
 bond. Use the estimation formula to figure the approximate cost of debt
financing.
e. What is the WACC?

Jawaban P9-16
a. what is the company’s cost of retained earnings financing?

$ 1.26 (1+ 0,06)

rr = + 0,06
$ 40
$ 1.34
= + 0,06
$ 40
= 3,35% + 6%
= 9,35%
b. what is the company’s cost of new common stock financing?

$ 1.26 (1+ 0,06)

rs = + 0,06
$ 40−$ 7
$ 1.34
= + 0,06
$ 37
= 4.06% + 6%
= 10,06%
c. What is the cost of preferred stock financing?

$2
rp =
$ 25−$ 3
$2
=
$ 22
= 9,09 %
d. Use the estimation formula to figure the approximate cost of debt financing.
$ 1.000−$ 1.175
$ 100+
5
rd =
$ 1.175+ $ .1 .000
2
$ 65
rd =
$ 1.087,50
rd = 5,98 %
untuk mencari ri
ri = 5,98 % x ( 1 – 0,40)
 ri = 3,59 %
e. What is the WACC?
WACC = (0,40 x 3,59 %) + (0,10 x 9,09 %) + (0,50 x 9,35%)
WACC = 1,436 + 0,909 + 4,675
WACC = 7,02%