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Marina CMI [18]
3 years ago
11

A firm has issued $25 million in long-term bonds that now have 9 years remaining until maturity. The bonds carry a 9% annual cou

pon and are selling in the market for $950.12. The firm also has $35 million in market value of common stock. For cost of capital purposes, what portion of the firm is debt financed and what is the after-tax cost of debt, if the tax rate is 30%? Group of answer choices 71.43% debt financed; 4.92% after-tax cost of debt 59.57% debt financed; 6.30% after-tax cost of debt 40.43% debt financed; 6.89% after-tax cost of debt 41.67% debt financed; 3.45% after-tax cost of debt
Business
1 answer:
tensa zangetsu [6.8K]3 years ago
6 0

Answer:

40.43% debt financed; 6.89% after-tax cost of debt

Explanation:

In order to determine the portion of the firm financed by debt ,we need first of all ascertain the market value of the company

Market value of the firm=market value of equity+market value of debt

market value of equity=$35 million

market value of debt=$25 million*$950.12/$1000=$23.75 million

market value of firm=$ 23.75  million+$35 million= $58.75  million

portion of debt finance=market value of debt/firm's value

                                      =23.75/ 58.75 =40.43%

The after tax cost =pretax cost of debt*(1-t) where t is the tax rate of 30%

pretax cost of debt is the same yield to maturity computed using rate formula in excel

=rate(nper,pmt,-pv,fv)

nper is the number of times the bond would pay interest which is nine times

pmt is the annual interest payment=$25 million*9%=$2.25 million

pv is the current price of the bond=$23.75 as shown above

fv is the face value of $25 million

=rate(9,2.25,-23.75,25)=9.86%

after tax cost of debt=9.86% *(1-0.3)=6.89%

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Answer:

C. Recorded using a Create Invoices window

Explanation:

Credit sales refers to the purchases made by customers for which payment is delayed. A reasonable payment delay allows customers to make additional purchases as delayed payments allow customers to generate cash with the purchased goods which in turn can be used to pay back the seller.

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3 years ago
Marc and Michelle are married and earned salaries this year of $64,000 and $12,000, respectively. In addition to their salaries,
stiks02 [169]

Answer:

I will use the 2020 tax schedule since recovery rebate credit applies to 2020:

Marc and Michelle's gross income = Marc's and Michelle's salaries + interest from corporate bonds = $64,000 + $12,000 + $500 = $76,500

they should choose the standard deduction since it is higher than their itemized deductions = ($24,400)

contribution to IRA = ($2,500)

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Interests on municipal bonds is not taxable.

The amount of taxes that they owe = $5,377 - $3,500 (federal tax withholdings) = $1,877

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3 years ago
A 10% decrease in the price of gas grills leads to a 15% increase in the demand for flank steaks. The cross-price elasticity of
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Answer:

B) -1.5

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3 years ago
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Answer:

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Democratic leadership style would help her show the inexperienced employee some route out to get skilled and follow subordinates to improve work. Collaborative working with the employees provides managers with much needed team dynamics. Also, democratic leadership styles makes managers gather much needed skills which are essential for the leaders of the organization.

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