Question
In: Finance
ABC Inc.’s currently outstanding 9% coupon bonds have a yield to maturity of 8%. ABC believes...
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ABC Inc.’s currently outstanding 9% coupon bonds have a yield to maturity of 8%. ABC believes it could issue new bonds at par that would provide a similar yield to maturity. If its marginal tax rate is 30%, what is ABC’s after-tax cost of debt, rd?
Also, ABC can issue perpetual preferred stock at a price of $50 a share with an annual dividend of $3.00 a share. What is the company’s cost of preferred stock, rps?
Besides, ABC has a beta of 1.4. The long term risk-free rate is 6%, while the market risk premium is 5.5%, and the return on an average stock in the market last year was 14%. What is the estimated cost of common equity, re using the CAPM?
Finally, if the tax rate is 30% and ABC has a target capital structure of 40% debt, 5% preferred stock, and 55% common stock, what is its WACC?
Solutions
jeff jeffy answered 2 years agoRelated Solutions
LL Incorporated's currently outstanding 10% coupon bonds have a yield to maturity of 7.2%.
FIN - 650 --- Problem 9-02 (After-Tax Cost of
Debt)LL Incorporated's currently outstanding 10% coupon bonds have a
yield to maturity of 7.2%. LL believes it could issue new bonds at
par that would provide a similar yield to maturity. If its marginal
tax rate is 25%, what is LL's after-tax cost of debt? Round your
answer to two decimal places.________%
The Heuser company’s currently outstanding 10% coupon bonds have a yield to maturity of 12%. Heuser...
The Heuser company’s currently outstanding 10% coupon bonds have
a yield to maturity of 12%. Heuser believes it could issue at par
new bonds that would provide a similar yield maturity. The marginal
tax rate of Heuse is 35%.
Required:
Calculate the after-tax cost of debt of Heuser.
Why debt is generally considered cheaper than equity? Explain
in less than 6 lines.
Would you borrow money if interest rate is significantly lower
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The Royal Inc. is currently in the business of making kitchen cabinets. It has $400,000 in outstanding bonds with a coupon rate of 8% and a yield-to-maturity of 7.5%.
The Royal Inc. is currently in the business of making kitchen
cabinets. It has $400,000 in outstanding bonds with a coupon rate
of 8% and a yield-to-maturity of 7.5%. The company is seeking
additional financing so it can start a new venture, which involves
the sales and installation of patio rooms, including spas and hot
tubs. Its biggest competitor, who specializes solely in patio
rooms, has $600,000 in outstanding bonds with a 9% coupon rate and
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BEEber Inc. currently has 10,000 bonds outstanding. The bonds have a coupon rate of 8%, paid...
BEEber Inc. currently has 10,000 bonds outstanding. The bonds
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The yield to maturity on 1-year zero-coupon bonds is currently
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plans to issue a 2-year maturity coupon bond, paying coupons once
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At what price will the bond sell?
What will the yield to maturity on the bond be?
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Walter Corp.'s outstanding bonds have a 5.8% coupon, 5 years left until maturity, and are currently...
Walter Corp.'s outstanding bonds have a 5.8% coupon, 5 years
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____%. Round your final answer to 2 decimal places
(example: enter 12.34 for 12.34%), but do not round any
intermediate work in the process. {And, do not
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Pelzer Printing Inc. has bonds outstanding with 9 years left to maturity. The bonds have a...
Pelzer Printing Inc. has bonds outstanding with 9 years left to
maturity. The bonds have a 9% annual coupon rate and were issued 1
year ago at their par value of $1,000. However, due to changes in
interest rates, the bond's market price has fallen to $905.35. The
capital gains yield last year was -9.465%.
What is the yield to maturity? Do not round intermediate
calculations. Round your answer to two decimal places.
%
For the coming year, what is...
Pelzer Printing Inc. has bonds outstanding with 9 years left to maturity. The bonds have a...
Pelzer Printing Inc. has bonds outstanding with 9 years left to
maturity. The bonds have a 8% annual coupon rate and were issued 1
year ago at their par value of $1,000. However, due to changes in
interest rates, the bond's market price has fallen to $901.40. The
capital gains yield last year was -9.86%.
What is the yield to maturity? Do not round intermediate
calculations. Round your answer to two decimal places. %
For the coming year, what is...
Pelzer Printing Inc. has bonds outstanding with 9 years left to maturity. The bonds have a...
Pelzer Printing Inc. has bonds outstanding with 9 years left to
maturity. The bonds have a 8% annual coupon rate and were issued 1
year ago at their par value of $1,000. However, due to changes in
interest rates, the bond's market price has fallen to $901.40. The
capital gains yield last year was -9.86%.
What is the yield to maturity? Do not round intermediate
calculations. Round your answer to two decimal places. %
For the coming year, what is...
Hooper Printing Inc. has bonds outstanding with 9 years left to maturity. The bonds have an...
Hooper Printing Inc. has bonds outstanding with 9 years left to
maturity. The bonds have an 8% annual coupon rate and were issued 1
year ago at their par value of $1,000. However, due to changes in
interest rates, the bond's market price has fallen to $910.40. The
capital gains yield last year was - 8.96%.
What is the yield to maturity? Round your answer to two decimal
places.
For the coming year, what is the expected current yield? (Hint:...
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