All categories

3 years ago

To calculate the after-tax cost of debt, multiply the before-tax cost of debt by ________________

Business

1 answer:

Lady_Fox [76]3 years ago

4 0

Answer:

To calculate the after-tax cost of debt, multiply the before-tax cost of debt by <u>(1 - tax rate)</u>.

Water and Power Company (WPC) can borrow funds at an interest rate of 10.20% for a period of four years. Its marginal federal-plus-state tax rate is 45%. WPC's after-tax cost of debt is <u>= 10.20% x (1 - 45%) = 5.61%</u>.

At the present time, Water and Power Company (WPC) has 15-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,329.55 per bond, carry a coupon rate of 12%, and distribute annual coupon payments. The company incurs a federal-plus-state tax rate of 45%. 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)?

<u>B. 4.47%</u>

pre-tax cost of debt = bond's yield to maturity

approximate YTM = {120 + [(1,000 - 1,329.55)/15] / [(1,000 + 1,329.55)/2] = 98.03 / 1,164.775 = 0.08416 = 8.416%

approximate after tax cost of debt = 8.4% x (1 - 45%) = 4.62 = 4.62

since I used the approximate yield to maturity, my answer is not exact. That is why I have to look for the closest available option.

You might be interested in

If the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied______________.

Ivenika [448]

Answer:

d. there is a shortage and the interest rate is below the equilibrium level.

Explanation:

If the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied, there is less money available for loans than the required, which characterizes a shortage. Higher interest rates decrease the demand while lower rates increase demand; if demand is higher than supply, the interest rate is lower than the equilibrium rate.

Therefore, there is a shortage and the interest rate is below the equilibrium level.

7 0

3 years ago

Utopia Corporation provides $6,000 worth of lawn care on account during the month. Experience suggests that about 3% of net cred

photoshop1234 [79]

Answer:

The answer is C.

Explanation:

Credit sales is $6,000

Bad debt is 3% of net credit sales which is $180($6,000 x3%)

Creating allowance for doubtful debt entry is one of the prudent method and it tells us that some customers won't pay part of what they are owing. And it is also a contra account that offset bad debt.

According to the accounting rule, debit increases asset and expenses and vice-versa while credit decreases liability, equity, income and vice versa.

So we have have:

Dr Bad debt expense $180

Cr Allowance for Doubtful Accounts $180

6 0

3 years ago

Explain why a relative price is an opportunity cost. The money price of a pound of bananas is $0. 90 and the money price of a tu

dimaraw [331]

The opportunity cost is stated in relative pricing, that is, the price of one option in comparison to another.

When there are numerous vendors in a market but no one is significant enough to control the price of a product. Because both items must be produced, the relative price must match the opportunity cost. If the opportunity cost of one good is lower in the home country than so will be the relative price.

As bananas cost $0.90 per kg, so, if a toothpaste is for $2.25, we are forgoing 2.25 kgs banana (2.25/0.9). Thus, the opportunity cost is 2.5 kg bananas which is equal to the relative price of bananas.

Therefore, relative price is an opportunity cost.

To know more about relative price click here:

brainly.com/question/14187254

#SPJ4

6 0

1 year ago

Kalons, Inc. is a U.S.-based MNC that frequently imports raw materials from Canada. Kalons is typically invoiced for these goods

pantera1 [17]

Answer:

The correct answer is C) purchase Canadian dollar put options.

Explanation:

A sale option (or put option) gives its holder the right - but not the obligation - to sell an asset at a predetermined price until a specific date. The seller of the option to sell has the obligation to buy the underlying asset if the holder of the option (buyer of the right to sell) decides to exercise his right.

The purchase of put options is used as hedging, when price falls are anticipated in shares that are held, since by means of the purchase of Put the price is established from which money is earned. If the stock falls below that price, the investor earns money. If the share price falls, the profits obtained with the sale option compensate in whole or in part for the loss experienced by said fall.

Losses are limited to the premium (price paid for the purchase of the sale option). Earnings increase as the share price falls in the market.

5 0

3 years ago

Suppose that both of the events you have just analyzed are partly responsible for the increase in the price of hamburgers. Based

MatroZZZ [7]

It is likely that the increase in the price of hamburgers is related to the fact that demand is greater than supply.

<h3 /><h3>What is the law of supply and demand?</h3>

It is an economic approach to understanding the economic factors that influence the quantity of a product supplied in a market and its price.

Therefore, when there is more demand than supply for a good available in the economy, it means a situation of scarcity, which makes prices rise.

Find out more about law of supply here:

brainly.com/question/26374465

#SPJ1

4 0

1 year ago