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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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If Sarah is in the income tax band that has a marginal rate of 24%, the amount of the deduction that must be taken in order to generate a tax advantage that is equivalent to that provided by the child care credit is x = 5000.

This is further explained below.

<h3> What amount of deduction is necessary to provide a tax benefit that is equal to that provided by the child care credit if Sarah is in the 24% marginal income tax bracket?</h3>

Generally, The proportion of an individual's income that must be paid in taxes is referred to as that person's marginal tax rate.

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In conclusion,

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6 0
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Research proves that heterogeneous groups are infinitely more productive and creative than homogeneous groups. Describe environm
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Explanation:

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A heterogeneous group, on the other hand, is made up of different people regarding different variables, such as culture, opinions, languages, life experience and several others. This type of group is common to find in higher education institutions.

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