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Cerrena [4.2K]
3 years ago
10

A firm recently issued $1,000 par value, 20-year bonds with a coupon rate of 9%. Coupon interest payments will be paid semi-annu

ally. The bonds sold at par value, but the firm paid flotation costs amounting to 5% of par value. The firm has a tax rate of 21%. What is the firm's after-tax cost of debt for these bonds?
Business
1 answer:
Valentin [98]3 years ago
3 0

Answer:

cost of debt 0.0748421 = 7.48%

Explanation:

\frac{r(1-t)}{(1-f)} = $after tax cost of debt

The flotation cost makes the cost increase as we did not receive the whole amount but a diminished portion.

Also, the cost is decrease as are tax deductible making the interest expense to provide a tax shield.

pretax cost of debt =

0.09 x (1 -0.21) / (1 - 0.05) = 0,0748421

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supply of loanable funds to the left; increase and decrease respectively.

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The increase in the capital gains tax will reduce, the savings as it axes earnings on assets in the stock market. This reduction in savings will cause the supply of loanable funds to decrease.  

This will further cause the supply curve for loanable funds to shift to the left. This leftward shift in the loanable fund's supply curve will cause the interest rate to increase and the equilibrium quantity of loanable funds to decrease.

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The _____________ is the contract that seals the deal when you buy a car.
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The answer is a loan agreement because you agreed to by the car
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What is the meaning of statistics??​
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3 years ago
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. January 1, 2002 you bought a coupon bond for $1102. You received a coupon of $50 on December 30 . On January 1, 2003, you sold
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Answer:

-5.72%

Explanation:

Total rate of return = (Total return/net loss ÷ Purchase Price) × 100 ......... (1)

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3 years ago
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A baseball player is offered a 5-year contract that pays him the following amounts: Year 1: $1.40 million Year 2: $1.51 million
jolli1 [7]

The player's annual salary (in millions of dollars), using the present value calculations, is <u>$1.89743 million</u>.

<h3>What is the present value?</h3>

The present value of the player's future cash flows (salaries) is the current value or the value in today's dollars.  It is computed by discounting the future values at the appropriate discount rate.

The present value can be computed using the Present Value formula, an online finance calculator, or the PV factor table.

Formula

PV = FV \frac{1}{(1+r)^{n}}

Where:

PV = present value

FV = future value

r = rate of return

{n} = number of periods

<h3>Data and Calculations:</h3>

Discount rate = 10%

Period of salary = 5 years

Period      Cash Flows     PV Factor      Present Value

Year 1:    $1.40 million        0.909           $1,272,600 ($1.4 x 0.909)

Year 2:    $1.51 million        0.826             1,247,260 ($1.51 x 0.826)

Year 3:  $2.25 million         0.751             1,689,750 ($2.25 x 0.751)

Year 4:  $2.59 million        0.683             1,768,970 ($2.59 x 0.683)

Year 5:   $3.17 million        0.621              1,968,570 ($3.17 x 0.621)

Additional present value required          1,540,000

Total present value =                             $9,287,150

Annual salary (in millions of dollars) = $1.89743 million ($9,287,150/5).

Thus, the player's annual salary (in millions of dollars) is <u>$1.89743 million</u>.

Learn more about present value calculations at brainly.com/question/20813161

8 0
2 years ago
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