Question
In: Finance
A firm raises capital by selling $35,000 worth of debt with flotation costs equal to 1%...
A firm raises capital by selling $35,000 worth of debt with flotation costs equal to 1% of its par value. If the debt matures in 10 years and has an annual coupon interest rate of 10%, what is the bond's YTM?
The bond's YTM is ____%. (Round to two decimal places.)
Solutions
jeff jeffy answered 1 year agoRelated Solutions
Question 1) A firm raises capital by selling $10,000 worth of dept with flotation costs equal...
Question 1) A firm raises capital by selling
$10,000 worth of dept with flotation costs equal to 1% of its par
value. If the debt matures in 15 years and has an annual coupon
interest rate of 12%, what is the bonds YTM?
Question 2) Gronseth Drywall Systems, inc., is
in discussions with its investment bankers regarding the issuance
of new bonds. The investment banker has informed the firm that
different maturities will carry different coupon rates and sell at...
1. A firm needs to take flotation costs into account when it is raising capital from...
1. A firm needs to take flotation costs into account when it is
raising capital from __?___ .
2. True or False: Taking flotation costs into account will
reduce the cost of new common stock.
True: Taking flotation costs into account will reduce the cost
of new common stock, because you will multiply the cost of new
common stock by 1 minus the flotation cost—similar to how the
after-tax cost of debt is calculated.
False: Flotation costs are additional costs...
Define the term: Flotation Costs. Should we expect the flotation costs for debt to be significantly...
Define the term: Flotation Costs. Should we expect the flotation
costs for debt to be significantly lower than those for equity? Why
or why not? Please support your answer using supporting information
from the chapters in this unit and the course. Do you agree with
the positions taken by your classmates? Can you provide
counterpoints or insight as to why they may want to reconsider
their view of expected flotation costs?
Define the term: Flotation Costs. Should we expect the flotation costs for debt to be significantly...
Define the term: Flotation Costs.
Should we expect the flotation costs for debt to be
significantly lower than those for equity? Why or why not? Please
support your answer using supporting information from the chapters
in this unit and the course. Do you agree with the positions taken
by your classmates? Can you provide counterpoints or insight as to
why they may want to reconsider their view of expected flotation
costs?
Debt generally has a lower cost of capital to a company, due to lower flotation costs,...
Debt generally has a lower cost of capital to a company, due to
lower flotation costs, lower risk taken by debt holders and benefit
of a tax shield received from writing off interest expense on a
corporate's income statement.
A firm raises capital with issuing debt (60%) and prefer stocks (40%). It will sell a...
A firm raises capital with issuing debt (60%) and prefer stocks
(40%). It will sell a 12-year bond with 9% coupon rate that will
semiannually be paid. The firm is about to sell prefer stock that
has $100 par value and pays 12.8 % of par value as dividend per
year. Its current BOND price is set to $120 and floatation cost of
this issuance is 3%. (tax rate is 40%)
Compute cost of debt
Compute cost of prefer stock...
A firm can be worth $90 or $310 with equal probability. The firmʹs debt consists of...
A firm can be worth $90 or $310 with equal probability. The
firmʹs debt consists of a zero -coupon bond with a face value of
$180 that matures at the end of one year. Assume risk neutrality
and a cost of capital of 11%. What will the bondholders pay for
this debt? 143 200 162 180
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...
how do issue/flotation costs affect the cost of capital?
how
do issue/flotation costs affect the cost of capital?
Firm X is being acquired by Firm Y for $35,000 worth of Firm Y stock (valued...
Firm X is being acquired by Firm Y for $35,000 worth of Firm Y
stock (valued at the pre-merger current price of Y). Both firms are
all-equity financed. The incremental value created by the merger is
$2,500. Firm X has 2,000 shares of stock outstanding at $16 per
share. Firm Y has 1,200 shares of stock outstanding at a price of
$40 per share. What is the actual cost of the acquisition to Firm Y
using company stock? Why is...
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