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boyakko [2]
3 years ago
15

Calculate the after-tax cost of debt using following bond information. A four year bond has a 7 percent coupon rate and a $1000

face value. If the market value of the bond is $788, assuming that the bond makes annual coupon payments and the tax rate is 35%.
a. 7.16 %
b. 14.32 %
c. 12.12 %
d. 9.31 %
e. 5.01 %
Business
1 answer:
miv72 [106K]3 years ago
3 0

Answer:

d. 9.31 %

Explanation:

in order to solve this question you cannot use the approximate yield to maturity since it will yield an approximation, but not an exact answer:

approximate YTM = {70 + [(1,000 - 788)/4]} / [(1,000 - 788)/2] = 13.76%

after tax cost of debt = 13.76% x 0.65 = 8.94%, but that is not an option

we must determine the exact yield to maturity which is determined by the following formula:

$788 = $70/(1 + i) + $70/(1 + i)² + $70/(1 + i)³ + $1,070/(1 + i)⁴

the simplest way to solve this is by using a financial calculator since the math is complicated. The exact yield to maturity = 14.324%

after tax cost of debt = 14.324% x (1 - tax rate) = 14.324% x 0.65 = 9.31%

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Persuasive business letters are letters written in great detail which describes in length the strategies, practices, and tools required in order to reach a certain goal. These letters are considered official paperwork that represents your personality. Which is why they are sent out to official business partners as well as potential clients/users so as to detail your plan to them. Vendors do not need to know the inner workings and practices which is why they are excluded from the list.



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<h2>Please Check the attachment for the remaining answers.</h2>
Download docx
6 0
3 years ago
Read 2 more answers
EB8.
Stolb23 [73]

Answer:

The fixed costs per unit when 20,000 units are produced are $6.05 per unit.

Explanation:

Fixed costs per unit can be determined by using the following formula:

Fixed costs per unit = Total fixed costs/ number of units are produced

In a company, Total fixed costs do not depend on the level of activity (Fixed costs do not change).

In the company, Total fixed cost = $11 x 11,000 = $121,000

When 20,000 units are produced, Fixed costs per unit = $121,000/20,000 = $6.05 per unit.

3 0
3 years ago
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