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krok68 [10]
3 years ago
11

Currently, Warren Industries can sell 20 dash year​, ​$1 comma 000​-par-value bonds paying annual interest at a 9​% coupon rate.

Because current market rates for similar bonds are just under 9​%, Warren can sell its bonds for ​$980 ​each; Warren will incur flotation costs of ​$20 per bond. The firm is in the 28​% tax bracket. a. Find the net proceeds from the sale of the​ bond, Upper N Subscript d. b. Calculate the​ bond's yield to maturity​ (YTM​) to estimate the​ before-tax and​ after-tax costs of debt. c. Use the approximation formula to estimate the​ before-tax and​ after-tax costs of debt.
Business
1 answer:
Rufina [12.5K]3 years ago
5 0

Answer:

a. Cash proceeds $960

b. Cost of Debt Before tax 9.4% and after tax 6.8%

c. Cost of Debt Before tax 9.39% and after tax 6.76%

Explanation:

a.

Cash proceed from the sale of bond is the net selling price and the floating cost of the bonds.

Cash proceed = Selling price - Floating cost = $980 - $20 = $960

b.

Yield to maturity is the annual rate of return that an investor receives if a bond bond is held until the maturity.

Yield to maturity = [ C + ( F - P ) / n ] / [ (F + P ) / 2 ]

Yield to maturity = [ $90 + ( $1,000 - $960 ) / 20 ] / [ ( $1,000 + $960 ) / 2 ]

Yield to maturity = 9.4%

Cost of debt before tax = 9.4%

Cost of debt after tax = 9.4% ( 1 - 0.28 ) = 6.8%

c.

Yield to maturity = [ C + ( F - P ) / n ] / [ (F + P ) / 2 ]

Yield to maturity = [ $90 + ( $1,000 - $960 ) / 20 ] / [ ( $1,000 + $960 ) / 2 ]

Yield to maturity = 9.39%

Cost of debt before tax = 9.39%

Cost of debt after tax = 9.19% ( 1 - 0.28 ) = 6.76%

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Answer: Option (C) is correct.

Explanation:

Correct option: A $50 billion decrease in government spending would be the most contractionary fiscal policy.

A. Increase the taxes by $40 billion is also a contractionary fiscal policy but it doesn't have a greater impact than decreasing  the government spending by $50 billion.

B. It is an expansionary fiscal policy.

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Therefore, Option (C) is having the most contractionary fiscal policy.

5 0
3 years ago
If you deposited $1,000 in a savings account that paid an annual percentage rate of 1 percent and that compounds quarterly, how
WARRIOR [948]

We will have an amount of $1,010.04 at the end of a year if you did not take out any funds.

<h3>What formula will be used to calculate the balance?</h3>

The future value formula will be used to calculate the total balance after a year.

Given that: A = $1,000, i = 1%, n = 1,  m = 4

Future value = $1,000 * (1 + 1%/4)^(1*4)

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6 0
2 years ago
A company with 100,000 authorized shares of $7 par common stock issued 46,000 shares at $16. Subsequently, the company declared
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Answer:

$27,600

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4 0
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Tricia had $100,000 in mortgage debt forgiven through a short sale on her principal residence on her Federal income tax return.
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Answer:

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In answer to this question, Tricia must include $100000 as the amount of the discharge of indebtedness from the disposition of her principal residence when when she is completing her Schedule CA for the year 2019.

We have option d, 100000 dollars as the answer because the ​amount of debt forgiven is known to be taxable.

8 0
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Answer:

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cash investment made by the owner and their withdrawals will be in the financing activities section

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Therefore, the equity transactions are included in the financing activities sections

From the owner point of view, it is an investment. But, we must remember that the owner and te company are different entities. For the company it is financiation

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