ABC Corporation has decided to sell ₱1000 bonds which will pay semiannual dividends of ₱20 (2% per period) and will mature in 5 years. The bonds are sold at ₱830, but after brokers' fees and other expenses the company ends up receiving ₱760. What is the company's cost of the capital raised through the sale of these bonds?

ABC Corporation has decided to sell ₱1000 bonds which will pay semiannual dividends of ₱20 (2% per period) and will mature in 5 years. The bonds are sold at ₱830, but after brokers' fees and other expenses the company ends up receiving ₱760. What is the company's cost of the capital raised through the sale of these bonds?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter12: The Cost Of Capital

Section: Chapter Questions

Problem 2P

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ABC Corporation has decided to sell ₱1000 bonds which will pay semiannualdividends of ₱20 (2% per period) and will mature in 5 years. The bonds are sold at₱830, but after brokers' fees and other expenses the company ends up receiving ₱760.Is the bond a good buy for an investor who expects a 9% return on his investments?
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Maddux Corporation has an EBIT of $865, 000 per year that isexpected to continue in perpetuity. The unlevered cost of equity forthe company is 13 percent and the corporate tax rate is 24 percent.The company also has a perpetual bond issue outstanding with amarket value of $2.25 million. What is the value of the company? (Do not round intermediate calculations and enter your answer indollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89) The CFO of the company informs the companypresident that the value of the company is $4.8 million. Is the CFOcorrect?