Which of the following are sections of the Schedule of Cost of Goods Manufactured? (You may select more than one answer.
1 answer:
You might be interested in
Answer: Surething Inc, needs to issue bonds with 11% interest rate in order to make Hugh indifferent between investing in two bonds.
We arrive at the answer in the following manner:
The City of Helfin bonds are municipal bonds and hence they are tax free. This means that Hugh will get an after - tax return of 6.6%.
The bonds of Surething Inc offering a 10% interest, however are taxed at 40%. So, the current after-tax returns of the bond is:
Current after tax return = 0.06 or 6%
However Hugh will be indifferent to investing in these two bonds only if they offer the same after-tax return of 6.6%.
Given this, we can calculate the indifference rate as follows:
Pre-tax return = 0.11 or 11%.