At the present time, Water and Power Company (WPC) has 5-year noncallable bonds with a face value of $1,000 that are outstanding
. These bonds have a current market price of $1,050.76 per bond, carry a coupon rate of 10%, and distribute annual coupon payments. The company incurs a federal-plus-state tax rate of 25%. If WPC wants to issue new debt, what would be a reasonable estimate for its after-tax cost of debt (rounded to two decimal places)? (Note: Round your YTM rate to two decimal place.) 6.53% 7.51% 5.22% 7.84%
1 answer:
Answer:
6.53%
Explanation:
For computing the after cost of debt we need to use the RATE formula i.e to be shown in attached spreadsheet. Kindly find it below:
Given that,
Present value = $1,050.76
Future value or Face value = $1,000
PMT = 1,000 × 10% = $100
NPER = 5 years
The formula is shown below:
= Rate(NPER;PMT;-PV;FV;type)
The present value come in negative
So, after applying this above formula
1. The pretax cost of debt is 8.70
2. And, the after tax cost of debt would be
= Pretax cost of debt × ( 1 - tax rate)
= 8.70% × ( 1 - 0.25)
= 6.53%
You might be interested in
Answer:
Ending Balance Due = $14,980.106
Total Interest = $780.106
Explanation:
solution
Total Interest and Ending balance due by the U.S. Rule are as given below
so interest is here for 70 day with 12 % of 21000
interest = 0.12 × 21000 ×
interest = $490
so
payment = $2400 - $490
payment = $1,910
and adjusted balance will be after that
adjusted balance = $21,000 - $1,910
adjusted balance = $19,090
and
on 100 day
Interest = 0.12 × $19,090 ×
Interest = $190.9
and
Payment = $4,400 - $190.9
payment = $4209.1
So
adjusted balance = $19090 - $4209.1
adjusted balance = $14,880.9
and interest = $14,880.9 × 0.12 ×
interest = $99.206
so Ending Balance Due will be
Ending Balance Due = $14,880.9 + $99.206
Ending Balance Due = $14,980.106
and
Total Interest = $490 + $190.9 + $99.206
Total Interest = $780.106