Question
In: Finance
Suppose a company will issue new 20-year debt with a par value of $1,000 and a...
Suppose a company will issue new 20-year debt with a par value of $1,000 and a coupon rate of 8%, paid annually. The issue price will be $1,000. The tax rate is 35%. If the flotation cost is 2% of the issue proceeds, then what is the after-tax cost of debt? Disregard the tax shield from the amortization of flotation costs. Round your answer to two decimal places. % What if the flotation costs were 11% of the bond issue? Round your answer to two decimal places.
Solutions
jeff jeffy answered 1 year agoRelated Solutions
a. Suppose a 7.2% semi-annual coupon 20-year Treasury issue with a par value of $100 issue...
a. Suppose a 7.2% semi-annual coupon 20-year Treasury issue with
a par value of $100 issue is priced in the market based on the
on-the-run 20-year Treasury yield. Assume further that this yield
is 5.60%, so that each cash flow is discounted at 5.60% divided by
2. What is the market price of the Treasury issue based on this
assumption?
b. Suppose also that the price of the same Treasury issue would
be $115.285 if it is calculated based on...
a. Suppose a 7.2% semi-annual coupon 20-year Treasury issue with a par value of $100 issue...
a. Suppose a 7.2% semi-annual coupon 20-year Treasury issue with
a par value of $100 issue is priced in the market based on the
on-the-run 20-year Treasury yield. Assume further that this yield
is 5.60%, so that each cash flow is discounted at 5.60% divided by
2. What is the market price of the Treasury issue based on this
assumption? b. Suppose also that the price of the same Treasury
issue would be $115.285 if it is calculated based on...
Suppose Hillard Manufacturing sold an issue of bondswith a 10-year maturity, a $1,000 par value,...
Suppose Hillard Manufacturing sold an issue of bonds
with a 10-year maturity, a $1,000 par value, a 10% coupon rate, and
semiannual interest payments.a. Two years after the bonds were issued, the going rate of
interest on bonds such as these fell to 6%. At what price would the
bonds sell?b. Suppose that 2 years after the bonds were issued, the going
interest rate had risen to 12 %. At what price would the bonds
sell?Arnot International’s bonds have a...
Suppose Hillard Manufacturing sold an issue of bonds with a 10-year maturity, a $1,000 par value,...
Suppose Hillard Manufacturing sold an issue of bonds with a
10-year maturity, a $1,000 par value, a 10% coupon rate, and
semiannual interest payments.
a) Two years after the bonds were issued, the going rate of
interest on bonds such as these fell to 7%. At what price would the
bonds sell? Round the answer to the nearest cent.
b) Suppose that 2 years after the initial offering, the going
interest rate had risen to 13%. At what price would...
Question 4 Keys Printing plans to issue a $1,000 par value, 20-year noncallable bond with a...
Question 4 Keys Printing plans to issue a $1,000 par value,
20-year noncallable bond with a 7.00% annual coupon, paid
semiannually. The company's marginal tax rate is 40.00%, but
Congress is considering a change in the corporate tax rate to
57.50%. By how much would the component cost of debt used to
calculate the WACC change if the new tax rate was adopted?
Group of answer choices –1.48% –1.00% –1.23% –1.29% –1.25%
Question 5 Weston Refurbishing Inc. is considering a...
18. New Jet Airlines plans to issue 16-year bonds with a par value of $1,000 that...
18. New Jet Airlines plans to issue 16-year bonds with a par
value of $1,000 that will pay $40 every six months. The bonds have
a market price of $1,340. Flotation costs on new debt will be 7%.
If the firm has a 35% marginal tax bracket, what is cost of
existing debt?
22. GHJ Inc. is investing in a new project of $16 million. It
will raise $4 million of bonds, $4 million of preferred stock, and
$8 million...
The Cost of Debt and Flotation Costs. Suppose a company will issue new 25-year debt with...
The Cost of Debt and Flotation Costs.
Suppose a company will issue new 25-year debt with a par value
of $1,000 and a coupon rate of 9%, paid annually. The issue price
will be $1,000. The tax rate is 35%. If the flotation cost is 2% of
the issue proceeds, then what is the after-tax cost of debt?
Disregard the tax shield from the amortization of flotation costs.
Round your answer to two decimal places.
%
What if the flotation...
The approximate after-tax cost of debt for a 20-year, 7 percent, $1,000 par value bond selling...
The approximate after-tax cost of debt for a 20-year, 7 percent,
$1,000 par value bond selling at $960 (assume a marginal tax rate
of 40 percent) is
Select one:
a. 4.41 percent.
b. 5.15 percent.
c. 7 percent.
d. 7.35 percent.
the company has an outstanding issue of bonds with a par value of $1,000 and paying...
the company has an outstanding issue of bonds with a par value
of $1,000 and paying a 3.80 percent p.a. coupon rate with
semi‑annual payments. The bonds were issued 30 years ago and have
15 years to maturity. What should be the current price per bond,
assuming a 4.28 percent p.a. yield on comparable securities?
please show all calculations on
excel
A shipping company sold an issue of 16-year $1,000 par bonds to build new ships. The...
A shipping company sold an issue of 16-year $1,000 par bonds to
build new ships. The bonds pay 8.25% interest, compounded
semiannually. Today's required rate of return is 6.80%. How much
should these bonds sell for today? Round to two decimal places.
To answer the question, you must:
(1) Describe and interpret the assumptions related to the
problem.
(2) Apply the appropriate mathematical model to solve the
problem.
(3) Calculate the correct solution to the problem.
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