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In-s [12.5K]
3 years ago
7

Kenny Electric Company's noncallable bonds were issued several years ago and now have 20 years to maturity. These bonds have a 9

.25% annual coupon, paid semiannually, sells at a price of $1,075, and has a par value of $1,000. If the firm's tax rate is 40%, what is the component cost of debt for use in the WACC calculation?a. 4.35% b. 4.58% c. 4.83% d. 5.08% e. 5.33%
Business
1 answer:
murzikaleks [220]3 years ago
3 0

Answer:

d. 5.08%

Explanation:

We have to first calculate the YTM of the bond, and then apply the tax shield.

To get the YTM we have to calculate the rate of return of an annuity of 46.25 for 20 years compounding semiannually at IRR rate and the present value of the face value redeem in 20 years.

C \times \frac{1-(1+r)^{-time} }{rate} +Face\:Value/(1+rate)^{time}= PV\\

46.25 \times \frac{1-(1+IRR/2)^{-20*2} }{rate} + 1000/(1+IRR)^{20}= 1075\\

IRR = 0.084656891 (it should be done using financial calculator or excel or a similar software program)

then we apply the shield tax to the IRR:

IRR x (1 - tax-rate) = Cost of debt

0.084656891 * ( 1 - 0.4) = 5.0794= 5.08

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Which information would most likely cause a company's stock price to go up?
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Explanation:

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2 years ago
Vnich of the following a Morales ik rom diving area
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Explanation:

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On January 22, Jefferson County Rocks Inc., a marble contractor, issued for cash 210,000 shares of $30 par common stock at $34,
adoni [48]

Answer:

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Dr Cash $180,000

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Preparation of the entries for January 22 and February 27.

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Cr Paid-In Capital in Excess of Par-Preferred $45,000

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