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Arisa [49]
3 years ago
13

Joliet Company is planning to issue $1,000 par value bonds that have a coupon rate of 9.6%. The bonds will be sold at a market p

rice of $1,120. Flotation costs will amount to 4 percent of market value. The bonds would mature in 15 years and coupon payments would be semi-annual. Joliet's corporate tax rate is 35%. What is the firm's cost of debt financing
Business
1 answer:
11111nata11111 [884]3 years ago
4 0

Answer:

Pre-tax cost of debt is 8.7%

After-tax cost of debt is 5.66%

Explanation:

the cost of debt financing  before tax is the yield to maturity on the bond, which can be computed using the rate formula in excel.

=rate(nper,pmt,-pv,fv)

nper  is the number of times the bonds pay s interest which is 15*2=30

pmt is the semi-annual  interest of the bond:9.6%/2*$1000=$48

pv  is the current market price of $1,120 minus 4% flotation cost i.e 1120*96%=$1075.2

Fv is the face of the bond at $1000

=rate(30,48,-1075.2 ,1000)

rate=4.35% on semi-annual basis

rate  =4.35%*2=8.7% on annual basis

after tax cost of debt =8.7%*(1-0.35)

                                    =5.66%

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Answer:

The correct answer is that the valuation would decrease total assets and stockholders’ equity by $101.00

Explanation:

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1 220 $ 4.40  $ 4.60        no impact as cost is lower

2 130 $ 6.20  $ 6.00 ($6.20-$6.00)* 130=$26

3 100 $ 10.00  $ 9.25 ($10-$9.25)*100    =$75

4 25 $ 20.50  $ 25.00 No impact as cost is lower

The total reduction in the value of inventory as a result of adopting the lower of cost or market price valuation is $101 ($75+$26),hence decreases total assets by $101 and the stockholders' equity(retained earnings which is a component of stockholders' equity ) by the same amount

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Answer:

$16.50

Explanation:

Note: The complete question is attached as picture below

We know that there is a total of 90 units of oil and 30 units is consumed in period 0.

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For 60 units, the price will be 60 = 192 - 8P

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(A) A wholly owned Subsidiary

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