Ask question

Ask question

All categories

3 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)

1 answer:

nekit [7.7K]2 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%

You might be interested in

When a third party knows that an agent is acting on behalf of a principal, but does not know the identity of the principal, the

Amanda [17]

Partially disclosed or unidentified

5 0

2 years ago

Kellogg's sells many different breakfast cereals, including Corn Flakes, Rice Krispies, Frosted Flakes, Raisin Bran, and Special

11Alexandr11 [23.1K]

Answer:

The answer is false

Explanation:

Breadth, refers to the number of product lines offered by a firm

6 0

2 years ago

uysha [10]

1. revenue 2. income 3. graph 4. equity 5. balance sheet 6. income taxes

5 0

2 years ago

How long should you wait before republishing a piece of content to a new website? You shouldn’t wait. Republish it immediately.

Oliga [24]

Answer:

The correct answer is Two weeks.

Explanation:

If you publish twice in a week, in the next you publish ten times, once in the third week and again ten times the next, your visits will take it very strangely. One of the ways to maintain a loyal audience is precisely to make her know the frequency of your blog post.

Only by having this regularity, your visitors will know how often they should visit your website.

In this way you eliminate the likelihood of someone visiting your blog and feeling frustrated when they did not find anything new when it was for that reason that they accessed, or finding 15 new posts when he hoped to find only 1.

8 0

2 years ago

You put aside $300 a month in an account that returns 9% a year, compounded monthly. How long do you need to contribute to save

Anettt [7]

Answer:

36 years 4 months and 2 days

Explanation:

Data provided in the question:

Monthly payment = $300

Rate of return, i = 9% = 0.09

Future value = $1,000,000

Now,

we know

Future value = Monthly payments × $\left[ \frac{(1+i)^{n}-1}{i} \right]$

or

1000000 = $300 × $\left[ \frac{(1+0.0075)^{ }-1}{ 0.0075 }$

or

$\frac{ 1000000}{ 300} &= \frac{ 1.0075^{n} - 1}{ 0.0075}$

$3333.33333 &= \frac{ 1.0075^{n} - 1}{ 0.0075}$

$1.0075^{n} - 1 &= 3333.33333 \times0.0075$

or

1.0075ⁿ - 1 = 25

or

1.0075ⁿ = 26

ln( 1.0075ⁿ) = ln(26)

or

n × ln( 1.0075 ) = ln(26)

or

n = [tex]\frac{ \ln (26) }{ \ln( 1.0075 ) }[tex]

or

n = 436.04 months

or

n = 36 years 4 months and 2 days

5 0

2 years ago

Read 2 more answers