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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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Answer:

Explanation:

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1st july-14                  Notes receivable             $1,393,591

                         Discount on notes receivable                                                                     ($1,393,591 - S600,100 - $317,900)                  $475,591

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1-Jul-14

                                  Notes receivable                 $404,300

                                   Service revenue                                  $404,300

`                               (to record service revenue)

5 0
3 years ago
According to the Fisher effect, if the "real" rate of interest in a country is 3 percent and the expected annual inflation is 8
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Answer:

11.24%

Explanation:

Fisher equation:

(1 + nominal interest rate) = (1 + real interest rate) x (1 + expected annual inflation)

1 + nominal interest rate = 1.03 x 1.08

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5 0
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Job A3B was ordered by a customer on September 25. During the month of September, Jaycee Corporation requisitioned $3,400 of dir
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Answer:

Total cost of Job A3B=  $31,900

Explanation:

Job A3B was ordered by a customer on September 25.

The company applies overhead at a rate of 100% of the direct labor cost incurred.

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$4,900 manufactured overhead

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$7,400 of direct labor

$7,400  manufactured overhead

Total= $18,700

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