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AveGali [126]
4 years ago
6

Revive Co. has outstanding 20-year noncallable bonds with a face value of $1000. These bonds have a current market price of $138

2.73 and an annual coupon rate of 13%. The comp;any faces a tax rate of 35%.
If the company wants to issue new debt, what would be a reasonable estimate for its after-tax cost of debt?A. 6.9%B 5.75%C 5.18%D 6.61%
Business
1 answer:
pickupchik [31]4 years ago
7 0

Answer:

5.75%

Explanation:

Firstly, we need to find the yield-to-maturity (YTM) of current outstanding bond as below:

Bond market price = Coupon/(1 + YTM) + Coupon/(1 + YTM)^2 + Coupon/(1 + YTM)^3 +...+ Coupon/(1 + YTM)^20 + Face value/(1 + YTM)^20, or:

1,382.73 = 130/(1 + YTM) + 130/(1 + YTM)^2 + 130/(1 + YTM)^3 +...+ 130/(1 + YTM)^20 + 1,000/(1 + YTM)^20

Solve the equation, we get YTM = 8.85%.

So, if he company wants to issue new debt, its after-tax cost of debt is 8.85% x (1 - 35%) = 5.75%

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The current FUTA tax rate is 0.8%, and the SUTA tax rate is 5.4%. Both taxes are applied to the first $7,000 of an employee's pa
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Answer:

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FUTA and SUTA tax rate are applied to the first $7,000 of an employee's pay. Here the employee earned $8,900 but we will only tax the $7,000 due to the pre-condition of taxing the initial $7,000 amount.

FUTA tax rate = 0.8%

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The amount of total unemployment taxes the employer must pay on this employee's wages is $434.

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3 years ago
Read 2 more answers
What are the 5 types of insurance
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Answer:

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Hope this helps!! <3

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