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fgiga [73]
4 years ago
5

At the present time, Perpetualcold Refrigeration Company (PRC) has 10-year noncallable bonds with a face value of $1,000 that ar

e outstanding. These bonds have a current market price of $1,278.41 per bond, carry a coupon rate of 11%, and distribute annual coupon payments. The company incurs a federal-plus-state tax rate of 25%. If PRC wants to issue new debt, what would be a reasonable estimate for its after-tax cost of debt (rounded to two decimal places)
Business
1 answer:
nekit [7.7K]4 years ago
7 0

Answer:

after-tax cost of debt 5.2725%

Explanation:

We will solve for the market rate of the bonds which is the one that makes the maturity and coupon payment equal to its current market price:

We sovle it using a financial calcualtor or excel goal seek tool

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

C 110.000 (1,000 x 11%)

time  10 years

<em>rate 0.070304812</em>

110 \times \frac{1-(1+0.0703048118151927)^{-10} }{0.0703048118151927} = PV\\

PV $771.5066

\frac{Maturity}{(1 + rate)^{time} } = PV  

Maturity   1,000

time   10 years  

<em> rate  0.070304812</em>

\frac{1000}{(1 + 0.0703048118151927)^{10} } = PV  

PV   506.90

PV c $771.5066

PV m  $506.9034

Total $1,278.4100

Now that we find that market rate is 7.03%

we calcautle the after tax cost of debt:

7.03 x (1 - 25%) = 5.2725%

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<u>Answer:</u>

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3 0
3 years ago
Which of the following statements is CORRECT? Group of answer choices Unlimited liability and limited life are two key advantage
Pepsi [2]

Answer:

The correct statement is;  Limited liability is an advantage of the corporate form of organization to its owners (stockholders), but corporations have more trouble raising money in financial markets because of the complexity of this form of organization.

Explanation:

A limited company can either be private or public. A limited company posses these 2 key features namely;

1.  Limited liability- the liability of shareholders is limited to the amount of their investment in the company.

2. Seperate legal existence-  a limited company can in it's name sue, be sued and enter into contracts.

Limited liability means that the investors can only lose the money they have invested and no more, meaning lenders have to keep this in mind when issuing loans to limited companies.

5 0
3 years ago
Two eastern European countries formed a free trade agreement. As a result, one of the countries that used to produce its own pla
Aleonysh [2.5K]

Answer:

Trade creation

Explanation:

Trade creation is the process where there is increase in economics welfare as a result of joining a free trade area for example a customs Union.

Consumption experiences a shift from high cost producers to low cost producers causing expansion in trade.

In the given instance due to formation of free trade agreement, high cost plastic production is now replaced with low cost import of plastics from the other company.

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3 years ago
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JulijaS [17]

Answer:

At least during the last couple of decades, service firms tend to generate sustained growth while manufacturing firms do not.

Explanation:

The last president that recorded a steady manufacturing growth rate was Bill Clinton.

Service firms are growing steadily and probably will continue to do it. While manufacturing firms have been slowing down, their growth rate (if any) is not very large during the past few years and that tendency has increased with the new trade barriers imposed by our government during the last couple of years.

Another thing that helps the growth of service firms is that when manufacturing firms or agricultural firms grow, they need more services, so service firms will grow even more.

6 0
3 years ago
The information systems of several firms have been compromised by insiders that can include contract employees, cleaning staff,
ch4aika [34]

Answer:

True

<h3>What is an Information system?</h3>
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To learn more about it,  refer

to brainly.com/question/25689052

#SPJ4

7 0
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