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andrew11 [14]
3 years ago
7

A firm recently issued $1,000 par value, 20-year bonds with a coupon rate of 6% and semi-annual payments. The bonds sold at par

value, but flotation costs amounted to 5% of par value. The firm has a marginal tax rate of 21%. What is the firm's cost of debt for these bonds?
a) 5.09%
b) 6.00%
c) 4.74%
d) 9.48%
e) 6.45%
Business
1 answer:
Fittoniya [83]3 years ago
5 0

Answer:

e) 6.45%

Explanation:

Since the coupons are paid semiannually, adjust the coupon payment(PMT), the time (N) of the bond.

You can solve for cost of debt using financial calculator with the following inputs;

Maturity of the bond; N = 20 *2 = 40

Face value; FV = 1000

Coupon payment; PMT = (6%/2) *1000 = 30

Price ; PV = -(1000 - floatation cost) = -(1000 - (5%*1000) = -950

then compute semiannual interest rate; CPT I/Y = 3.224%

Convert semiannual interest rate to annual rate to find the cost of debt;

3.224% *2 = 6.45%

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Johnston Company wants to double production of Product X from 1,000 units to 2,000 units. The variable manufacturing cost per un
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Answer: C - $30,000

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3 years ago
C.B. Management, Inc., had a franchise agreement with McDonald’s Corp., to operate McDonald’s restaurants in Cleveland, Ohio. Th
statuscvo [17]

Answer:

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In a franchise relationship, the <u>franchisee</u> is economically dependent on the <u>franchisor's</u> business system.

The franchise relationship is defined by the <u>contract</u>.

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Why?  A) the contract provided McDonald's could terminate the contract when a payment was more than 30 days late.

Did the contract provide that the acceptance of a late payment waived McDonald's right to terminate for late payments? NO

What does an implied covenant of good faith and fair dealing require? That the parties act <u>reasonably</u>.

Did McDonald's act of accepting late payments in the past transform McDonald's right to terminate into a discretionary decision governed by the standard of good faith and fair dealing in the future? NO

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A court would likely find for <u>McDonald’s</u>

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3 years ago
joseph is eligible for a non taxable life insurance benefit with an annual premium of $400 paid entirely by his employer. Assumi
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Based on the fact that the non-taxable life insurance benefit is $400, the amount that Joseph would have to earn is $555.56.

<h3>How much should Joseph earn?</h3>

This can be found as:

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Solving gives:

= 400 / (1 - 28%)

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Find out more on non-taxable benefits at brainly.com/question/1581158.

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