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aalyn [17]
2 years ago
5

FIN issues a $1000 par value bond that pays 7 precent annula interest and will mature in 14 years. The current market price for

the bond is $950. Flotation costs will be 14 percent of market price. The company's marginal tax rate is 25%. What will be FIN's aafter tax cost of debt? g
Business
1 answer:
Serjik [45]2 years ago
5 0

Answer:

7.05 %

Explanation:

After tax cost of debt = interest x ( 1 - tax rate)

so, the initial step is to determine the interest rate :

The Bond Yield (i/yr) presents the market rate and this is what we want for our interest rate.

thus,

PV = -  [$950 - ($950 x14%)] = - $817<em>(remove floatation cost from market price)</em>

FV = $1000

PMT = $1000 x 7 % = $70.00

P/YR = 1

N = 14

i/yr = ??

Using a financial calculator to input the values as above, the Bond Yield (i/yr) will be 9.40 %

therefore,

After tax cost of debt = 9.40 % x (1 - 0.25)

                                    = 7.05 %

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Additional paid in capital decrease by 100 as a result of the acquisition

Explanation:

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Additional Paid-In Capital 100 (100 shares x $1)

cash 1,000 (100 shares x $10)

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7 0
3 years ago
If you lived on a fixed income how would you be affected by inflation
choli [55]

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Increase of he cost of living VS stagnaition of income

Explanation:

Having a fixed income that is not adjusted by inflation affects the quality of living as year by year the cost of goods and services will rise but the income will remain the same. Therefore it is a matter of time until the income wont be  enough to pay all the expenses and costs.

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3 years ago
During the last half of 2008, the Fed seemed to take "baby steps" in reducing the federal-funds rate target, before finally lowe
emmasim [6.3K]

Answer:

Why can't the Fed push the rate any lower than zero?

Real interest rates can be lower than zero, or negative (because inflation rate is higher than interest rate), but nominal interest rates are generally only limited to zero. But during this same time, the European Central Bank actually started paying negative interest rates on money deposits and many European private banks followed. That means that they charged people for having their money on the bank.

Why do you think that the Fed was so seemingly reluctant to push the rate all the way to the floor?

The reason why the Fed was not willing to push the interest rates to zero or even below zero was that by doing so, the US dollar would have depreciated or lost value. In Europe this was done to encourage people to spend their money and not save as much, but in the US that is not really a problem. Generally in the US the problem is that people spend too much and save too little, but on some European countries and Japan, people tend to save too much. For example in Japan the national savings rate fluctuates between 22-40%, while the maximum savings rate in the US has been 10.4% in 1960, it currently is around 7.6%.

4 0
3 years ago
Raleigh Co. has the following products in its ending inventory. Compute the lower of cost or market total for inventory applied
Rom4ik [11]

Answer:

C. $2,018.00.

Explanation:

The computation of the lower cost or market value is shown below:

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= 370 units  $2.50

= $925

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It is come by multiplying the quantity of each one by its lower cost or market value per unit

6 0
2 years ago
Which of the following are arguments that are given to support trade barriers?
Roman55 [17]

Answer:

E To prevent dumping

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There are several arguments that are given to support trade barriers; one of which is to prevent dumping. A country would place embargo on imports with respect to some of the goods that are produced in her country. This is to enable and encourage local production of such goods. Where a country permits importation of goods that are produced locally, such action could being down the efforts of local production ; hence local industries might not thrive in terms of production.

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5 0
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