1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
Alex787 [66]
3 years ago
9

Jay's Bakery has a bond issue outstanding that matures in eight years. The bonds pay interest semiannually. Currently, the bonds

are quoted at 97.8 percent of face value and carry a coupon rate of 5.7 percent. What is the aftertax cost of debt if the tax rate is 21 percent?
Business
1 answer:
asambeis [7]3 years ago
3 0

Answer:

Ans. The after tax cost of this debt is 4.8526% annual.

Explanation:

Hi, first we have to establish the amount to pay for each coupon. In our case, the coupon is paid semi-annually, so the coupon is:

Coupon=\frac{CouponRate}{2} *100=\frac{0.057}{2} *100=2.85

we also need to take into account that this is an eight years bond, we need to change years into semesters, so 8 years = 16 semesters.

We´re going to need MS Excel to find this value (Function "IRR"), Please see the attached excel sheet for further clarifications.

This is what it should look like

Price  97,8  

Coupon  5,70% annual

Coupon  0,0285 semi-annual

taxes  21%  

time             8 years

time            16 semesters

Period Cash Flow

     0 97,8

      1 -2,85

      2 -2,85

      3 -2,85

      4 -2,85

      5 -2,85

      6 -2,85

      7 -2,85

      8 -2,85

      9 -2,85

     10 -2,85

     11 -2,85

     12 -2,85

    13 -2,85

    14 -2,85

    15 -2,85

    16 -102,85

Using the "IRR" function, we get 3.0255%, but this discount rate is semi-annual, and the answer we are looking for has to be effective annual, therefore, we need to use the followiong formula.

r(Annual)=(1+0.030255)^{2 } -1=0.061425

So our discount rate (cost of this debt) before taxes is 6.1425% annual. In order to find the after tax cost of this debt, we have to use the following formula.

AfterTaxCost=Before TaxCost(1-Taxes)=0.061425*(1-0.21)=0.048526

Therefore, the after tax cost of this debt is 4.8526% annual.

Best of luck.

You might be interested in
Marks & spencer implemented _______ to track its inventory more effectively.
Verizon [17]
<span>The business implemented RFID as a way of tracking inventory. Using radio frequency made it easier to track and store inventory without running the risk of over- or under-ordering their products. This makes sure that the inventory is properly tagged and that the turnover rates on the products are properly logged. It also makes sure that the products do get turned over, instead of being left to waste in the stockroom due to errors on the part of the stock crew.</span>
5 0
3 years ago
The current sections of Culver Corporation's balance sheets at December 31, 2021 and 2022, are presented here. Culver Corporatio
natta225 [31]

Answer:

Net Cash Provided by Operating Activities is $286,000

Explanation:

                             Culver Corporation's

                    Partial Statement of Cash flows

            For the year ended December 31, 2022

<em>Cash Flow from Operating Activities</em>

Net Income                                                               $229,500

<em></em>

<em>Adjustment to reconcile net income to</em>

<em>net cash provided by operating activities</em>

Depreciation Expenses                          $40,500

(Non-cash expense)

Decrease in Accounts Receivables       $13,500

(133,500 - 120,000)

Decrease in Inventory                             $6,000

(258,000 - 252,000)

Increase in Prepaid Expenses                -$7,500

(33,000 - 40,500)

Increase in Accrued Expenses Payable $15,000

(22,500 - 7,500)

Decrease in Accounts Payable              <u>-$10,500</u>     <u>$57,000</u>

(127,500 - 138,000)

Net Cash Provided by Operating Activities           <u>$286,000</u>

4 0
3 years ago
It is said that in a perfectly competitive market, raising the price of a firm's product from the prevailing market price of $17
stich3 [128]

Answer:

could likely result in a notable loss of sales to competitors

Explanation:

In the case of the perfect competitive market wheen the price of the firm is increased from $179 to $199 as compared to the prevailing market price so this means that there should be the loss with respect to the sales for the competitors or rivalrs as this would result the firm to lose its overall shares to its rivalry

Therefore the above statement should be considered true

6 0
2 years ago
Increasing your 401k deduction will ________ your take-home pay and __________ your federal taxes in the current year.
Nat2105 [25]
Increase and increase
5 0
3 years ago
Waterway Industries purchased a depreciable asset for $837300 on January 1, 2018. The estimated salvage value is $84000, and the
murzikaleks [220]

Answer:

$222,100

Explanation:

Cost = $837,300

Residual value = $84,000  

Useful life = 9 years  

Now,  

Annual straight line depreciation = \frac{Cost-Residual Value}{Useful life}  

Annual straight line depreciation = \frac{837,300 - 84,000}{9}  

Annual straight line depreciation = \frac{753,300}{9}  

Annual straight line depreciation = $83,700

Accumulated depreciation for three years i.e., 2018, 2019 and 2020 would be:

Accumulated depreciation = 3 × $83,700

Accumulated depreciation = $251,100

Book value (at the end of year 2020) = Cost - Accumulated depreciation  

Book value (at the end of year 2020) = $837,300 - $251,100

Book value (at the end of year 2020) = $586,200

Revised useful life = 5 years

No. years asset has been used = 3 years

Remaining useful life = 2 years

Revised salvage value = $142,000

Therefore, depreciation expense for the remaining three year would be:

Revised depreciation expense = \frac{Book value at the end of 2020 - Revised residual Value}{Remaining useful life}  

Revised depreciation expense = \frac{586,200 - 142,000}{2}  

Revised depreciation expense = \frac{444,200}{2}

Revised depreciation expense = $222,100

5 0
3 years ago
Other questions:
  • The amount of increase or decrease in cost that is expected from a particular course of action as compared with an alternative i
    12·1 answer
  • Under a ________ marketing system, independent production and distribution firms integrate their efforts on a contractual basis
    10·1 answer
  • Firm B Keep agreement Break agreement Firm A Keep agreement Firm A profit = $50 Firm B profit = $50 Firm A profit = $100 Firm B
    5·1 answer
  • Which of the following are reasons managed floating exchange rates were adopted by the industrialized nations in 1973?
    14·1 answer
  • What is the preferred form of real estate syndication in california?
    13·1 answer
  • Which of the following generate the type of externality previously described? Check all that apply. The city where you live has
    6·1 answer
  • Martin Company manufactures a powerful cleaning solvent. The main ingredient in the solvent is a raw material called Echol. Info
    10·1 answer
  • Since 2009, the Age Discrimination in Employment Act: Multiple choice question. has been broadened to include those from 15-40 r
    15·1 answer
  • How does specialization play a role at the bookstore?
    10·1 answer
  • The key to successfully competing is understanding what customers want and then __________ satisfy those wants.
    13·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!