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AURORKA [14]
3 years ago
13

Cost of Debt. Micro Spinoffs Inc. issued 20-year debt a year ago at par value with a coupon rate of 8%, paid annually. Today, th

e debt is selling at $1,050. If the firm's tax bracket is 21%, what is its percentage cost of debt

Business
1 answer:
Nina [5.8K]3 years ago
3 0

Answer:

5.925%

Explanation:

For computing the cost of debt, first we have to determine the YTM by using the Rate formula that is shown in the attachment

Given that,  

Present value = $1,050

Assuming figure - Future value or Face value = $1,000  

PMT = 1,000 × 8%  = $80

NPER = 20 year - 1 year = 19 year

= Rate(NPER;PMT;-PV;FV;type)  

The present value come in negative  

So, after solving this,  

1. The pretax cost of debt is 7.50%

2. And, the after tax cost of debt would be

= Pretax cost of debt × ( 1 - tax rate)

= 7.50% × ( 1 - 0.21)

= 5.925%

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<em>1</em><em>. </em><em>Economies of scale.</em>

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he Yachtsman Fund had NAV per share of $36.12 on January 1, 2016. On December 31 of the same year, the fund's NAV was $39.71. In
photoshop1234 [79]

Answer: 14.84%

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To calculate the rate of return the investors received we will do a simple return formula to find out by how much, in terms of the Opening NAV, the fund has increased.

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Companies A and B each have the same level of total assets, the same tax rate, and the same earnings before interest and taxes (
anygoal [31]

Answer:

a.Company A has a lower return on assets (ROA).

c.Company A has a lower times interest earned (TIE) ratio.

That is options a and c

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For company A to have high debt ratio means it has a higher debt which will reduce earnings. Company A's earnings will be less than Company B's.

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