Question
In: Finance
A. The (before-tax cost of debt/after-tax cost of debt) is the interest rate that a firm...
A. The (before-tax cost of debt/after-tax cost of debt) is the interest rate that a firm pays on any new debt financing.
B. Perpetualcold Refrigeration Company (PRC) can borrow funds at an interest rate of 11.10% for a period of four years. Its marginal federal-plus-state tax rate is 45%. PRC’s after-tax cost of debt is (6.11%/7.03%/5.80%/6.72%) (rounded to two decimal places).
C. At the present time, Perpetualcold Refrigeration Company (PRC) has 10-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,278.41 per bond, carry a coupon rate of 11%, and distribute annual coupon payments. The company incurs a federal-plus-state tax rate of 45%. If PRC wants to issue new debt, what would be a reasonable estimate for its after-tax cost of debt (rounded to two decimal places)?
a. 3.87%
b. 3.48%
c. 4.45%
d. 4.64%
Solutions
jeff jeffy answered 8 months agoRelated Solutions
To calculate the after-tax cost of debt, multiply the before-tax cost of debt by . Perpetualcold...
To calculate the after-tax cost of debt, multiply the before-tax
cost of debt by .
Perpetualcold Refrigeration Company (PRC) can borrow funds at an
interest rate of 11.10% for a period of four years. Its marginal
federal-plus-state tax rate is 25%. PRC’s after-tax cost of debt
is (rounded to two decimal places).
At the present time, Perpetualcold Refrigeration Company (PRC)
has 15-year noncallable bonds with a face value of $1,000 that are
outstanding. These bonds have a current market price...
if before tax cost of debt rd = 0.12, tax rate (T)=35%, what is the after...
if before tax cost of debt rd = 0.12, tax rate (T)=35%, what is
the after tax cost of debt?
1. Do we focus on after-tax cost of debt or before-tax cost of debt? Do we...
1. Do we focus on after-tax cost of debt or before-tax cost of
debt? Do we focus on new costs of debt or historical costs of debt?
Why?
2. How to adjust component cost of debt, preferred stock, common
stock for flotation costs?
3. When we calculate WACC, do we consider such current
liabilities as accounts payable, accruals, and deferred taxes as
sources of funding? Why?
If the tax rate is 40 percent, compute the before-tax real interest rate and the after-tax...
If the tax rate is 40 percent, compute the before-tax real
interest rate and the after-tax real interest rate.
(answer in percentages. If whole percentages, do not need
decimals. If have decimals, round to nearest hundredth of
percent)
Show all steps clearly
assume multiplying percentages by $100
before-tax real interest rate = nominal interest rate -
inflation rate
reduction in nominal interest = nominal interest rate multiplied
by tax rate
after-tax nominal interest rate = nominal interest rate -
reduction...
The approximate after tax cost of debt to a firm in the 40% tax bracket for...
The approximate after tax cost of debt to a firm in the 40% tax
bracket for a 20 year, 12% coupon, $1000 par value bond selling for
$950 is:
9.49%
9.00%
7.20%
3.60%
5.69%
Before-tax cost of debt and? after-tax cost of debt??Personal Finance Problem???David Abbot is interested in purchasing...
Before-tax cost of debt and? after-tax cost of debt??Personal
Finance Problem???David Abbot is interested in purchasing a bond
issued by Sony. He has obtained the following information on the?
security: Sony Bond Par value ? $1000 Coupon interest rate
Corporate tax rate 5.5?% 35?% Cost????????? Years to maturity 10??
?$910 Answer the following? questions: a.??Calculate the
?before-tax cost of the Sony bond using the? bond's yield to
maturity? (YTM). b.??Calculate the ?after-tax cost of the Sony bond
given the corporate...
Is that reasonable to assume the same interest rate before tax for all the debt in...
Is that reasonable to assume the same interest rate before tax
for all the debt in all recapitalization situations in a company?
In the cases of 30%, 50% and 70% debt ratio.
Suppose you are trying to estimate the after tax cost of debt for a firm as...
Suppose you are trying to estimate the after tax cost of debt
for a firm as part of the calculation of the Weighted Average Cost
of Capital (WACC). The corporate tax rate for this firm is 39%. The
firm's bonds pay interest semiannually with a 4.8% coupon rate and
have a maturity of 7 years. If the current price of the bonds is
$1,143.55, what is the after tax cost of debt for this firm?
(Answer to the nearest tenth...
Suppose you are trying to estimate the after tax cost of debt for a firm as...
Suppose you are trying to estimate the after tax cost of debt
for a firm as part of the calculation of the Weighted Average Cost
of Capital (WACC). The corporate tax rate for this firm is 35%. The
firm's bonds pay interest semiannually with a 7.1% coupon rate and
have a maturity of 13 years. If the current price of the bonds is
$934.64, what is the after tax cost of debt for this firm? (Answer
to the nearest tenth...
Q6. If a firm’s before-tax cost of debt is 10% and the firm has a 10%...
Q6.
If a firm’s before-tax cost of debt is 10% and the firm has a
10% marginal tax rate, what is the firm’s after-tax cost of
debt?
6.5%
3.5%
9.0%
7.9%
Q7.
A company has preferred stock that can be sold for $100 per
share. The preferred stock pays an annual dividend $6. Therefore,
the cost of preferred stock is:
4.0%
5.0%
6.0%
10.0%
Q8.
Suppose your company has an equity beta of 1.5 and the current
risk-free rate is...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- A neurologist needs to counsel a stroke victim and her husband about possible outcomes, treatment options,...
- Case Study: Personal Beliefs in the Workplace Don Shakow was a prominent professional who worked in...
- 1: Competency framework usage is the modern best practice in management. What is meant by competency...
- A 19.34 g mixture of sugar (C12H22O11) and table salt (NaCl) is dissolved in 231 g...
- Young and Company claims that its pressurized diving bell will, on average, maintain its integrity to...
- 1) Alternative compiled code sequence using instructions in classes A, B, C. What is the average...
- An asset is purchased on January 1 for $48,700. It is expected to have a useful...
ADVERTISEMENT