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algol [13]
2 years ago
9

Suppose we have a bond issue currently outstanding that has 25 years left to maturity. The coupon rate is 9% and coupons are pai

d semiannually. The bond is currently selling for $908.72 per $1000 bond. If the firm's marginal tax rate is 30%. What's the firm's after-tax cost of debt?________
A) 3.5%

B) 5.0%

C) 6.3%

D) 7.0%
Business
1 answer:
kotykmax [81]2 years ago
6 0

Answer:

The after tax cost of debt is

D) 7.0%

Explanation:

In order to find the firms after tax cost of debt we have to find it's pre tax cost of debt, which is also the yield to maturity or interest rate of the bond. In order to find it we need 4 other variables, the par value or future value of the bond, the present value of the bond, the coupon payments and the number of maturity periods.  

The present value is 908.72, the future value is 1,000, the coupon payment is (0.09*1000*0.5)= 45. We multiply the 9% coupon rate with the future value of the bond and divide it by 2 as 9 is the coupon rate and because there are semi annual payments we will divide it by 2. The number of periods are (25*2) as there are 25 years to maturity and 2 payment periods each year so number of periods are 50.

We need to put all these values in a financial calculator

Pv= 908.72

FV=-1000

PMT= -45

N= 50

Compute I=5.00

This is the semi annual interest rate so we will multiply it by 2 to find the yearly interest rate so 5*2= 10.

10% is the pre tax cost of debt and now we will multiply it by (1-tax rate) to find the after tax cost of debt

0.1*0.7= 0.07= 7%

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Sergio039 [100]

To avoid the problem of having to forecast and discount an infinite number of dividends, we must require that the dividends start to grow at a fixed rate in the future.

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Dividends are payments made by a company to its shareholders. This money is taken from the total profits made by the company. The remaining money after the payment of dividends goes to re-investment in order to grow the company.

Therefore, we can confirm that in order to avoid the problems presented in the question regarding dividends, we must require that they grow at a fixed rate in the future.

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4 0
2 years ago
During regular economic times in Canada, the maximum length of time a worker can collect employment insurance is 26 weeks. Durin
DochEvi [55]

Answer:

a) encourage people to search longer for a job.

c) prolong the amount of time a person stays out of work.

d) increase the number of workers looking for work.

Explanation:

7 0
2 years ago
Crane Company incurred the following costs for 88000 units: Variable costs $528000 Fixed costs 392000 Crane has received a speci
Anton [14]

Answer:

The minimum price is $6.8

Explanation:

Giving the following information:

Crane Company incurred the following costs for 88000 units: Variable costs $528000 Fixed costs 392000 Crane has received a special order from a foreign company for 3000 units. There is sufficient capacity to fill the order without jeopardizing regular sales. Filling the order will require spending an additional $2400 for shipping.

Because it is a special order and there is unused capacity, we will not have into account the fixed costs.

Unitary cost= (528,000/88,000) + (2,400/3,000)= $6.8 per unit

The minimum price is $6.8

7 0
3 years ago
the​ risk-free rate is 3​% and you believe that the​ S&amp;P 500's excess return will be 10​% over the next year. If you invest
horrorfan [7]

Answer:

The expected excess return will be 11.4%

Explanation:

The S&P 500's excess return is the market return (rM). Using the CAPM model or the SML approach, we can calculate the required/expected rate of return on the stock we are investing in.

The expected rate of return is,

r = rRF + β * (rM - rRF)

Thus, return on the invested stock will be:

r = 0.03 + 1.2 * (0.1 - 0.03)

r = 0.114 or 11.4%

7 0
3 years ago
Grady exchanges qualified property, basis of $21,833 and fair market value of $26,200, for 60% of the stock of Eadie Corporation
Svetach [21]

Answer:

$26,200

Explanation:

Current gain = Fair market value of the property - Basis of qualified property = $26,200 - $21,833 = $4367. Thus, the amount of Grady current gain is $4,367

We now determine the basis that Gredy takes for the share of Eadie stock

Basis = Original basis of qualified property + Current gain

Basis = $21,833 + $4,367

Basis = $26,200

Thus,  basis that Gredy takes for the share of Eadie stock is $26,200

3 0
2 years ago
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