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fgiga [73]
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)
Business
1 answer:
nekit [7.7K]3 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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Schach [20]

Answer:

The four beliefs are true. But accuracy is demanded

Explanation:

1 Investment risk is important ir order to estimate the likelihood of occurrance of  losses in the future.

2. money today is worth more than <em>the same amount </em>of money tomorrow.

3. inflation must be considered when making investment decisions, because  makes money lose their value in the future.

4. investment opportunity costs must be considered. Is necessary to compare investments with financial products or other commercial activities.

4 0
3 years ago
Jo is duly notified that her mortgage with Fund All Savings has been transferred to Big Loan Co. and that she should henceforth
Likurg_2 [28]

Answer:

Option D; JO IS LIABLE TO BIG LOAN CO. SINCE SHE RECEIVED A NOTICE FROM THEM ABOUT THE ASSIGNMENT.

Explanation:

A mortgage is a loan provided by a mortgage lender or a bank that enables an individual to purchase a home.

Mortgage payments usually occur on a monthly basis and consist of four main parts: principal, interest, taxes and insurance.

A transfer of mortgage is the reassignment of an existing mortgage, usually on a home, from the current holder to another person or entity.

When mortgage is transferred, two notices will be sent: one from the current mortgage servicer and the other from the new servicer. All payments after the notification will be made to the new servicer.

Since Jo was notified about the reassignment from Fund All Savings to Big loan Co. but still continues to pay Fund All Savings and Big Loan Co. sues Jo for nonpayment. What is most likely to be the court's judgement is that JO IS LIABLE TO BIG LOAN Co. SINCE SHE RECEIVED A NOTICE FROM THEM ABOUT THE ASSIGNMENT.

5 0
3 years ago
Several years ago a city established a sinking fund to retire an issue of general obligation bonds. This year the city made a 55
Amanda [17]

Answer: c. Debt Service Fund and General Fund

Explanation:

The Sinking fund is a Debt Service Fund as it was created to retire some general obligation bonds. Every transaction that had to do with the retirement of debt as well as contribution to the retirement of debt would go in this account.

The General fund is also needed because this is the main fund of a Government entity. Everything that does not go through special funds is recorded here. This Fund therefore would show that the city made a $550,000 contribution to the sinking fund.

4 0
3 years ago
When a "bubble" arises, asset prices are driven by:
Crazy boy [7]

Answer:

d. shifts in market psychology and successive waves of irrational exuberance.

Explanation:

Bubble in respect to financial market means an unexpected and non-explainable reason. This although the economists believes arises because of the emotional attachment and effects on an asset. As for example: when an asset is made using the specific raw material which is discovered to be precious in the terms it is ancient then, automatically the price of the asset increases in the market.

Thus, this is nothing but a market psychology that is basically an effect of emotional concerns of individual mindset, which is irrational.

This theory is explain by Keynesian the economists.

7 0
3 years ago
Imagine you are a manager prepare a memorandum (memo) to outlining the content in the video
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