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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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A 4% S/A coupon bond with 4 coupons remaining has a BEY of 8.00%,  is mathematically given as

DP=95.696. Option D is correct

<h3>What is the dirty price of this bond?</h3>

Generally, dirty price is simply defined as It's important to note that a "dirty price" is simply a bond pricing quotation that takes into account both the coupon rate and any interest that has already accumulated on the bond.

In conclusion, Dirty price

DP = (Clean price +  interest Accrued)

Therefore

DP=0.80*(4%*100/2)+2*(1-(1+4%)^(-3.20))/(4%)+100/(1+4%)^(3.20)

DP=95.696

CQ

A4% S/A coupon bond with 4 coupons remaining has a BEY of 8.00%. You buy the bond a little over a month before you get the first coupon. Specifically, the fraction of the 6-month period that has already elapsed is 0.80.

Calculate the dirty price of this bond.

O 81.370

85.216

93.471

o 95.696

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8 0
2 years ago
record the adjusting entry for recording the interest due on a note payable liability. assume that the company has a $2400 note
almond37 [142]

record the adjustment for interest due for one month's worth of interest

Interest=( 2400×5/100)×1/12

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In finance and economics, hobby is a price from a borrower or deposit-taking economic group to a lender or depositor of an amount above reimbursement of the major sum (that is, the quantity borrowed), at a specific price. It is awesome from a charge that the borrower may additionally pay the lender or some 1/3 party. It's also distinct from a dividend that is paid by a business enterprise to its shareholders (proprietors) from its earnings or reserve, however not at a specific fee decided in advance, rather on a seasoned-rata foundation as a percentage inside the praise gained by using threat-taking entrepreneurs while the revenue earned exceeds the overall expenses. For example, a consumer could normally pay interest to borrow from a financial institution, so they pay the financial institution an amount that is more than the amount they borrowed, or a customer can also earn hobby on their savings, and so they'll withdraw extra than they firstly deposited. In the case of savings, the patron is the lender, and the bank plays the position of the borrower.

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7 0
1 year ago
Which of the following events are examples of positive social media coverage?
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- xcorporation announces the launch of its latest headphones on social media websites
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2 years ago
Given the following cost and activity observations for Smithson Company's utilities, use the high-low method to calculate Smiths
OleMash [197]

Answer:

The correct answr is C.

Explanation:

Giving the following information:

Cost Machine Hours

January $52,200 20,000

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March 57,000 22,000

April 64,000 24,500

Variable cost per unit= (Highest activity cost - Lowest activity cost)/ highest activity units - Lowest activity units)

Variable cost per unit= (75,000 - 52,200) / (29,000 - 20,000)= 2.53

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4 0
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Answer: True

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Industrial markets enable businesses to transact with each other. They trade raw materials and other goods to each other and process them to finished goods.

The reseller market does not involve any processing but rather firms buying from one and selling to another as middlemen.

The last market is the Government market. Any arm of government that purchases goods and services fall here including at local, state or federal level.

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