Question

The following information is available for three companies:

	Rope Co.			Chain Co.			Line Co.
Face value of bonds payable	$	211,000		$	628,000		$	517,000
Interest rate		7	%		6	%		5	%
Income tax rate		35	%		20	%		25	%

Required
a. Determine the annual before-tax interest cost for each company in dollars.

	Before tax Cost
Rope Company
Chain Company
Line Company

b. Determine the annual after-tax interest cost for each company in dollars. (Round your answers to the nearest dollar amount.)

	After Tax Cost
Rope Co.
Chain Co.
Line Co.

c. Determine the annual after-tax interest cost for each company as a percentage of the face value of the bonds. (Round your answers to 1 decimal place.)

	After Tax Interest cost
Rope Co.
Chain Co.
Line Co.

Answer 1

Required a.)

	(i)	(ii)	(iii) = (i) * (ii)
	Face Value	Interest Rate	Before Tax Cost
Rope Company	$ 211,000	7%	$             14,770
Chain Company	$ 628,000	6%	$             37,680
Line Company	$ 517,000	5%	$             25,850

Required b.)

	(i)	(ii)	(iii) = (i) * (100% - ii)
	Before Tax Cost	Tax Rate	After Tax Cost
Rope Company	$             14,770	35%	$                      9,601
Chain Company	$             37,680	20%	$                   30,144
Line Company	$             25,850	25%	$                   19,388

Required c.)

	(i)	(ii)	(iii) = (i) / (ii) * 100
	After Tax Cost	Face Value	After Tax Interest Cost
Rope Company	$            9,601	$ 211,000	4.55%
Chain Company	$          30,144	$ 628,000	4.80%
Line Company	$          19,388	$ 517,000	3.75%

*** Please leave a comment in case of any doubt or query and i will get back to you. ***

Please hit like if this helps you!