Question

A.

Ying Import has several bond issues outstanding, each making semiannual interest payments. The bonds are listed in the following table.

Bond		Coupon Rate				Price Quote				Maturity			Face Value
1			6.5	%			106.46			5	years		$	45,000,000
2			8.0				115.02			8	years			40,000,000
3			7.7				113.57			15.5	years			60,000,000
4			7.3				102.81			25	years			67,000,000

If the corporate tax rate is 25 percent, what is the aftertax cost of the company’s debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

B.

The Woods Co. and the Speith Co. have both announced IPOs at $50 per share. One of these is undervalued by $9, and the other is overvalued by $2, but you have no way of knowing which is which. You plan to buy 400 shares of each issue. If an issue is underpriced, it will be rationed, and only half your order will be filled.

A.	What profit do you actually expect? (Do not round intermediate calculations.)

Answer 1

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