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HACTEHA [7]
3 years ago
12

Hi Tech Products has 35,000 bonds outstanding that are currently quoted at 102.3. The bonds mature in 11 years and carry a 9 per

cent annual coupon.
What is the firm’s after-tax cost of debt if the applicable tax rate is 35%?

A) 4.47% B) 4.79% C) 5.63% D) 5.98% E) 6.31%
Business
1 answer:
vladimir1956 [14]3 years ago
7 0

Answer:

C) 5.63%

Explanation:

First we have to find the pretax cost of debt of the firm in order to find it's after tax cost of debt.

We know the price of the bond is $102.3, its future value or par value is $100, the  number of periods are 11 as it is annual coupon bond with a maturity of 11 years and the coupon payment each year is (0.09*100)= $9. We can input these values in a financial calculator to find the bonds ytm or cost of debt.

PV= 102.3

FV= -100

PMT=-9

N= 11

Compute I = 8.66

The pretax cost of debt is 8.66%

Now in order to calculate the after tax cost of debt we will use the formula

Pretax cost of debt *(1-tax rate)

=0.0866*(1-0.35)=0.05629= 5.629% rounded of to 5.63%

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Companies Heidee and Leaudy are virtually identical in that they are both profitable, and they have the same total assets (TA),
ale4655 [162]

Answer:

e. Company Heidee has a higher ROE than Company Leaudy.

Explanation:

Return on equity measures how well the management of a business uses owner's equity to get returns. It is calculated by dividing net income by owner's equity.

That is

ROE= Net Income ÷ Owner's equity

Considering the accounting equation

Asset= Liability + Owner equity

Owner equity= Asset - Liability

From the equation when a company that take on more debt owner's equity will reduce.

The effect of reduction in owner's equity on Return on Equity is that it will increase the ratio, since owner's equity is the denominator.

In this scenario both companies have the same profit margin so if company Heidee has higher debt ratio it follows that it also has a higher ROE than Company Leaudy

3 0
3 years ago
On January 1, 2020, Piper Corp. purchased 40% of the voting common stock for of Betz, Inc. for $2,000,000 and appropriately acco
Neko [114]

Answer:

$57,600

Explanation:

The computation of the increase in Piper's deferred income tax liability for this temporary difference is shown below:-

Purchase of voting Common stock of Betz inc. by Piper Corp.= ( Betz's reported earnings - Betz Paid Dividends ) × (Percentage of the voting Common stock of Betz inc.)

= ($720,000 - $240,000) × 40%

= $480,000 × 40%

= $192,000

Now, the rise in Piper's deferred income tax liability for this temporary difference is

Purchase of voting Common stock of Betz inc. by Piper Corp. × enacted tax rate

= $192,000 × 30%

= $57,600

6 0
3 years ago
Merchandise is ordered on june 13; the merchandise is shipped by the seller and the invoice is prepared, dated, and mailed by th
scoundrel [369]

June 18th.

The date that the buyer receives the item is not important for the credit period, which starts the day the items are send out and invoiced.

4 0
3 years ago
A collection of verbal and symbolic assertions that specify how and why variables are related, and the conditions under which th
Vladimir79 [104]

Answer:

-1 to +1

Explanation:

The correlation coefficient range is from -1 to +1.

-1 shows that there is perfect negative correlation.

+1 shows that there is perfect positive correlation.

0 shows there is no correlation.

Positive correlation shows that with the increase of let's say X, there would also be increase of Y. They would positively move together

Negative correlation shows that two variable move in opposite direction.

6 0
3 years ago
facilities, factories, and production lines with very large equipment are all classified as a. installations. b. component parts
Mashutka [201]

Facilities, factories, and production lines with very large equipment are all classified as installations.

What is production?
Production is the process of combining different immaterial inputs (plans, knowledge) with material inputs to create something that is intended for consumption (output). It is the process of producing an outcome, a good as well as service that has value and enhances people's utility. Production theory, a branch of economics that focuses on production, is entwined with consumption (or consumer) economic theory. Utilizing the initial inputs productively leads to the production process and the output (or factors of production). Land, labour, as well as capital are regarded as the three primary production factors and are referred to as primary producer products or services. Both the output process and the final product do not significantly change these essential inputs or turn them into integral parts of the final product.

To learn more about production
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3 0
1 year ago
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