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alexdok [17]
3 years ago
5

Avicorp has a $10 million debt issue outstanding, with a 6% coupon rate. The debt has semiannual coupons, the next coupon is due

in six months, and the debt matures in five years. It is currently priced at 95% of par value.
a. What is Avicorp’s pretax cost of debt?
b. If Avicorp faces a 40% tax rate, what is its after-tax cost of debt?
Business
1 answer:
rjkz [21]3 years ago
8 0

Answer:

Explanation:

Pretax cost of debt is the annual rate(YTM) of the bond. Using a financial calculator, input the following to calculate it;

N = 5*2 = 10

PV = -(95% *10,000,000) = -9,500,000

Coupon PMT = (6%/2)*10,000,000 = 300,000

FV = 10,000,000

then compute semiannual rate; CPT I/Y = 3.604%

convert to annual rate = 3.604*2 = 7.21%(this is the pretax cost of debt)

After tax cost of debt is calculated because interest payable on debt has tax shield. The formula is as follows;

Aftertax cost of debt = pretax cost of debt (1-tax)

AT cost of debt = 7.21% (1-0.40)

AT cost of debt = 4.33%

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Answer: false

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The steps that are involved in vulnerability assessment are the identification of asset, threat evaluation, the vulnerability appraisal, the risk assessment and finally the risk mitigation.

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A project requires an initial investment of $10 million today. If the cost of capital exceeds the project IRR, then the project
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Answer:

Negative NPV.

Explanation:

present value of cost exceeds present value of revenue that is been assumed in the investment plan of the said company/firm.

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Qriosity inc. comes out with a new antivirus program and prices it at half price to attract buyers. the company is using _______
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You are a sales manager for a car dealership who wants to effectively target potential customers. Write a paper that details how
fenix001 [56]

Answer:

answer is given below

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In need of extra​ cash, Troy and Lily decide to withdraw ​$2 comma 100 from their traditional IRA. They are both 40 years old. T
krek1111 [17]

Answer:

Calculate the tax consequence of withdrawal from retirement account.

T and L are 40 years old and decide to withdraw $2,100 from their IRA. They lie in a 35% marginal tax bracket.

Analysis

They are withdrawing some amount from their retirement fund. They have to pay the tax and penalty for early withdrawals from the retirement fund. The withdrawal amount is $2,100 so they have to pay tax on it. The tax rate will be 35% which is their marginal tax bracket.

Calculation of tax consequences if withdrawal amount is $2,100:

Ordinary income tax amount calculates by multiplying the withdrawal amount with the ordinary tax rate.

= $2100 × 35%

= $735

The withdrawal amount attracts the 10% penalty. So, the penalty amount is calculated as follows: Penalty on withdrawn funds calculates by multiplying the withdrawn funds with the percentage of penalty.

= $2100 × 10%

= $210

(NOTE: - T and L have to pay ordinary income tax along with the penalty on their withdrawal because they are withdrawing funds from their IRA before age 59.5.)

Total expenses include the tax amount and penalty charge on withdrawal amount. So, it is calculated as follows:

Total expenses =$735 + $210

Total expenses = $945

Conclusion

Therefore, T and L would incur a tax of $945 on their withdrawal. This $945 is the sum of income tax amount and penalty on withdrawal balance.

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