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olga_2 [115]
3 years ago
14

A company is going to issue a $1,000 par value bond that pays a 5% annual coupon. The company expects investors to pay $684.5 fo

r the 20-year bond. The expected flotation cost per bond is $50, and the firm is in the 45% tax bracket. Compute the firm's after-tax cost of new debt. Round your calculations to the nearest 0.01%. Group of answer choices
Business
1 answer:
Sliva [168]3 years ago
5 0

Answer:

After tax cost of debt is 4.96%

Explanation:

In order to compute the after-tax cost of debt, the yield to maturity to maturity which is pre-tax cost of debt needs to determined first of all using the rate formula in excel as provided below:

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

nper is the time to maturity of the bond which is 20 years

pmt is the annual coupon receivable by investors $1000*5%=$50

pv is the current price of the bond less flotation cost per bond i.e($684.5-$50)=$634.5

fv is the future value of $1000 per bond

=rate(20,50,-634.5,1000)

rate=9.01%

after tax cost of debt=rate*(1-tax rate)

                                   =9.01% *(1-0.45)

                                    =4.96%

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Which of the following are correct descriptions of large corporations? (You may select more than one answer. Single click the bo
erik [133]

Answer:

  • The corporation survives even if managers are dismissed.
  • Shareholders can sell their holdings without disrupting the business.

Explanation:

Large corporations are not as easy to dissolve as other types of companies because they have other resources that are able to keep them going if they lose some. One of those resources could be a manager. Should a manager be dismissed, the corporation will survive and simply replaced the dismissed manager.

Also with such corporations, the shareholders can simply sell their shares and the business's operation will not be disrupted as the shareholders do not have any direct say over the day to day running of the business.

4 0
3 years ago
A jet ski that previously sold for $5,599.99 has been reduced to $3,863.99. What is the markdown percent? (Round your answer to
tangare [24]

Answer:

31%

Explanation:

The current price is $3,863.99

The precious price is $5,599.99

The actual difference in price is  $5,599.99 - $3,863.99

=$ 1, 736.00

Percentage  decrease will be  actual decrease/ original price X 100

= $ 1736.00/ $5,599.99 x 100

=0.31 x 100

=31%

5 0
3 years ago
The treasurer of a major U.S. firm has $40 million to invest for three months. The interest rate in the United States is .28 per
diamong [38]

Answer:

Check the explanation as follows.

Explanation:

a) If it is invested in US

Current= $40 million

Interest rate= 0.28% p.m

Interest for 1 month= $40 million*0.28%= $0.112 million

Interest for 3 months= $0.112*3= $0.336 million

Total value after 3 months= $40 million+$0.336 million = $40336000.

b) If it is invested in Great Britain.

Convert $40 million into Pounds= $40 million*0.639 = Pound 25.56 million

Ivest in Great Britain for 3 months @ 0.32%

Interest per month= 25.56 million*0.32% *3 = 0.245376

Total Pounds after 3 months= Pound 25.805376

Convert into $= 25.805376/0.642 = $40195289.7156

Value if invested in great britain= $40195289.7156

8 0
3 years ago
EB7.
egoroff_w [7]

Answer:

$4,228,125

Explanation:

The computation of the included amount is shown below:

= Estimated production in a next year × required direct labor per hour × labor rate per hour

= 75,000 units × 4.1 hours × $13.75 per hour

= $4,228,125

We simply multiplied the estimated production with the required direct labor per hour and the labor rate per hour so that the estimated value can arrive

5 0
3 years ago
"The Free-Float Company, a company in the 36% tax bracket, has riskless debt in its capital structure which makes up 40% of the
Strike441 [17]

Answer:

Equity Beta = 1.1413

Explanation:

The formula to find the asset beta is

Asset Beta = Equity Beta/(1+(1-tax rate)(Debt/Equity))

We will put the values given in the question in this formula

Asset Beta = 0.8

Tax rate = 0.36

Debt = 0.40

Equity = 0.60

0.8=Equity Beta/(1+(0.64)(0.40/0.60)

0.8=Equity Beta/1+0.4266

0.8=Equity Beta/1.4266

1.4266*0.8= Equity Beta

Equity Beta = 1.1413

6 0
3 years ago
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