A 7-year municipal bond yields 4.80%. Your marginal tax rate (including state and federal taxes) is 32.00%. What interest rate on a 7-year corporate bond of equal risk would provide you with the same after-tax return? (Round your final answer to two decimal places.) a. 7.06% Ob. 3.64% Oc. 6.34% Od. 3.26% e. 15.00%/
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- Bond Yield and After-Tax Cost of Debt A companys 6% coupon rate, semiannual payment, 1,000 par value bond that matures in 30 years sells at a price of 515.16. The companys federal-plus-state tax rate is 40%. What is the firms after-tax component cost of debt for purposes of calculating the WACC? (Hint: Base your answer on the nominal rate.)A 5-year corporate bond yields 10.70%. A 5-year municipal bond of equal risk yields 6.50%. Assume that the state tax rate is zero. At what federal tax rate are you indifferent between the two bonds? (Round your final answer to two decimal places.)A 7-year municipal bond with a face value of $1,000 earns annual income of $480. Your marginal tax rate (including state and federal taxes) is 36%. What annual pretax income on a 7-year corporate bond of equal risk would provide you with the same annual after-tax income as the municipal bond?
- An 8.4 percent coupon bond issued by the state of Indiana sells for $1,000. What coupon rate on a corporate bond selling at its $1,000 par value would produce the same after-tax return to the investor as the municipal bond if the investor is in: a. the 15 percent marginal tax bracket? b. the 25 percent marginal tax bracket? c. the 35 percent marginal tax bracket?7A-12 For a face value of $1,000, a zero-coupon bond maturates in 15 years. It has a 7% coupon, so I should be able to cash it in by the time I'm 70. pay in the first year For argument's sake, assume the taxpayer has a 25% effective tax rate a. $5.25b. $5.44c. $5.99d. $6.25e. $6.34An LGU bond offers a yield of 8.5%. What rate should a corporation offer on its bond so investors will invest on them? Assume a tax rate of 25%. Round-off final answer only to two decimal places.
- You can invest in taxable bonds that are paying a yield of 9.7 percent or a municipal bond paying a yield of 7.95 percent. Assume your marginal tax rate is 21 percent. a. Calculate the after-tax rate of return on the taxable bond? (Round your answer to 2 decimal places. (e.g., 32.16))b. Which security bond should you buy?1. To calculate the after-tax cost of debt, multiply the before-tax cost of debt by ______. 2. Western Gas & Electric Company (WGC) can borrow funds at an interest rate of 12.50% for a period of six years. Its marginal federal-plus-state tax rate is 25%. WGC’s after-tax cost of debt is ________. (rounded to two decimal places). 3. At the present time, Western Gas & Electric Company (WGC) has 15-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,555.38 per bond, carry a coupon rate of 11%, and distribute annual coupon payments. The company incurs a federal-plus-state tax rate of 25%. If WGC wants to issue new debt, what would be a reasonable estimate for its after-tax cost of debt (rounded to two decimal places)? (Note: Round your YTM rate to two decimal place.) 4.73% 4.11% 4.93% 3.29%1. Suppose the state of Indiana issued a tax-exempt bond to pay for student fees in its universities. The bond currently has a yield of 0.8 percent. 2. Suppose Mike is paying a marginal tax rate of 20% and Peter is paying a marginal tax rate of 30%. Calculate the equivalent taxable yields of this bond to both Mike and Peter. Mike: 0.8/(1-.2)=1 Peter: 0.8/(1-.3)= 2.67 3. Suppose that the yield on a Baa-rated corporate bond, a bond with the same credit rating as the state of Indiana, is 1.4 percent. Calculate the yield ratio between the tax-exempt bond vs the taxable bond, and briefly interpret what the yield ratio implies.
- 2) To calculate the after-tax cost of debt, multiply the before-tax cost of debt by ------ . Water and Power Company (WPC) can borrow funds at an interest rate of 9.70% for a period of four years. Its marginal federal-plus-state tax rate is 40%. WPC’s after-tax cost of debt is (rounded to two decimal places). At the present time, Water and Power Company (WPC) has 10-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,092.79 per bond, carry a coupon rate of 11%, and distribute annual coupon payments. The company incurs a federal-plus-state tax rate of 40%. If WPC wants to issue new debt, what would be a reasonable estimate for its after-tax cost of debt (rounded to two decimal places)? (Note: Round your YTM rate to two decimal place.) 4.57% 5.14% 5.71% 6.57%Calculate the after-tax return of a(n) 5.625.62 percent, 20-year, A-rated corporate bond for an investor in the 1515 percent marginal tax bracket. Compare this yield to a(n) 3.683.68 percent, 20-year, A-rated, tax-exempt municipal bond, and explain which alternative is better. Repeat the calculations and comparison for an investor in the 3535 percent marginal tax bracket. Question content area bottom Part 1 The after-tax return of the 5.625.62%, 20-year, A-rated corporate bond for an investor in the 1515% marginal tax bracket is enter your response here%. (Round to two decimal places.) Part 2 Compare this yield to the 3.683.68%, 20-year, A-rated, tax-exempt municipal bond and explain which alternative is better. (Select the best answer below.) A. The after dash tax yield of 4.78 % for the corporate bond is a better alternative than the 3.68 % tax dash free municipal bondThe after-tax yield of 4.78% for the corporate bond is a better…Municipal bonds are yielding 4.4 percent if they are insured and 4.7 percent if they are uninsured. Your marginal tax rate is 28 percent and the inflation rate is 1.645%. Your equivalent taxable yield on the insured bonds is _____ percent and on the uninsured bonds is _____ percent. How would your answers change if your marginal tax rate falls to 13.5% and the inflation rate increases to 2.0639%? What would happen to the YTM of the uninsured bond if negative news was announced resulting in a decline in its credit rating? What would happen to the YTM of the insured bond if it suddenly lost its insurance?