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Alisiya [41]
3 years ago
5

A company has outstanding 20-year noncallable bonds with a face value of $1000, and 11% annual coupon, and a market price of $1,

294.54. if the company was to issue new debt, what would be a reasonable estimate of the interest rate on the debt? If the company’s tax rate is 40%, what Is its after-ax cost of debt?

Business
1 answer:
Helen [10]3 years ago
6 0

Answer:

8% and 4.8%

Explanation:

In this question, we use the Rate formula which is shown in the spreadsheet.  

The NPER represents the time period.  

Given that,  

Present value = $1,294.54

Future value or Face value = $1,000  

PMT = 1,000 × 11% = $110

NPER = 20 years

The formula is shown below:  

= Rate(NPER;PMT;-PV;FV;type)  

The present value come in negative  

So, after solving this,  

1. The pretax cost of debt is 8%

2. And, the after tax cost of debt would be

= Pretax cost of debt × ( 1 - tax rate)

= 8% × ( 1 - 0.40)

= 4.8%

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2 years ago
Alan Jackson invests $20,000 at 8% annual interest, leaving the money invested without withdrawing any of the interest for 8 yea
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Answer:

a. $32,800

b. $37,019

c. $37,460

Explanation:

a. The computation of Total Amount Withdrawn by Alan when simple interest is shown below:-

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= $20,000 + ($20,000 × 8% × 8)

= $32,800

b. The computation of Total Amount Withdrawn by Alan when annually Compounded is shown below:-

Accumulated amount of money = Invested amount × (1 + rate of interest)^Number of years

= $20,000 × (1 + 0.08)^8

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Accumulated amount of money = Invested amount × (1 + rate of interest × Number of years ÷ 200)^16)

= ($20,000 × (1 + 0.08 × 8 ÷ 200)^16)

= $20,000 × 1.87298

= $37,460

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