ACT Inc. has a $1,000 (face value), 30 year bond issue selling for $838.88 that pays an annual coupon of 10.0 percent. Their marginal tax rate is 25%. a. What would be BAT's current before-tax component cost of debt?

ACT Inc. has a $1,000 (face value), 30 year bond issue selling for $838.88 that pays an annual coupon of 10.0 percent. Their marginal tax rate is 25%. a. What would be BAT's current before-tax component cost of debt?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter11: Determining The Cost Of Capital

Section: Chapter Questions

Problem 14P

See similar textbooks

Related questions

Q: Given the following data: Period Years to maturity Yield Par Value (K) Bond Price (K) 1 0.5 ...

A: Spot rates Spot rates are referred to as the current market value of an asset available for immediat...

Q: Sophie Gowna, 47 years old, works for an Ontario company with a Bi-weekly pay cycle. She earns $19 p...

A: Net taxable earnings can be calculated by taking the gross earning adding the taxable allowances the...

Q: Cold Goose Metal Works Inc. is a small firm, and several of its managers are worried about how soon ...

A: To determine the conventional cash flows we will determine the cumulative cash flows and see when th...

Q: You observed a stock moves 2% stdev each day usually, except for days of earning announcement. In th...

A: Stock prices move on a daily basis due to market dynamics. This indicates that stock prices change a...

Q: A certain stock has a beta of 1.2. If the risk-free rate of return is 4.5 percent and the market ris...

A: Risk-free return = 4.5% Market risk premium = 8% a) Beta = 1.2 b) Beta = 1.08 CAPM formula: Expected...

Q: Question 14 Which of the following is the most advantageous for a debtor if he borrowed P15, 000 at ...

A: We know, exact interest is calculated by taking exact number of days in a year [i.e. 365 or 366 in c...

Q: Five deposits are made at the EOYS of years 2021-2025, as shown in the CF table above. If the intere...

A: Interest Rate = 6% Time Period = 10 Years

Q: 3. Calculating Present Values For each of the following, compute the present value: Present Value Ye...

A: Future value = F Years = n Interest rate = r

Q: On January 1, 2022 a note was received where the present value of the note receivable is higher than...

Q: 4. Calculating Interest Rates Solve for the unknown interest rate in each of the following: Present ...

A: Interest Rate = (Future value / Present value)^(1/Time) - 1 1) Interest Rate = ($1,381 / $715)^(1/9)...

Q: What are the most important tactics that small companies can use to ensure their long-term financial...

A: Financial security is very important for small companies to sustain over the long period of time.

Q: IBM was trading at $100 when Mrs. Peterson bought a 100 call on IBM at a price of $10. Three months ...

A: The leverage factor for call or put options shows the relative change that occurs in option value be...

Q: The Present Value of an Ordinary Annuity is identical to the Present Value of an Annuity Due. This s...

A: The present value is the value of cash flow stream or the fixed lump sum amount at time 0 or the cur...

Q: what does it mean if the NPV and IRR are both positive, should the company invest on the project or ...

A: Net Present value refers to the present value of future cash flow, which means cash flows generated ...

Q: What is its price? What would its price be if the required yield rose to 17 percent? 20 percent?

A: Bond: It is a debt instrument issued by a company to raise capital for the purpose of expanding busi...

Q: Risk return exercise : D2L Assessment #7 DePaul, Inc. You are searching for a stock to add to your c...

A: Given:

Q: At the beginning of each quarter, P36,000 is deposited into savings account that pays 6% compounded ...

A: Quarterly deposits (D) = P36,000 Interest rate = 6% Quarterly interest rate (r) = [{1+(0.06/2)}2]1/4...

Q: finance a vacation in 4 years, Elsie saves $370 at the beginning of every six months in an account p...

Q: In the 2006 Stern Review, Professor Nicholas Stern used the discount rate of 1.4% (1.3% due to techn...

A: Option B : Nordhaus’s estimation of the discount rate is more correct than Stern’s. This statement i...

Q: ,000 Par Disney bond has a 4% coupon and will mature in 10 years. If its yielding (YTM) 5% when ...

A: Price of bond is sum of present value of coupon payment and present value of par value.

Q: 2. The average price of gasoline may reach $5.00 per gallon in some parts of the U.S. by next month....

A: The effective annual rate of interest is the rate at which the investment actually grows. It takes i...

Q: How long must development last to change the decision? or the decision to change, development must l...

A: To change the decision is period required to achieve the break even point that means no profit no lo...

Q: Sewing World has an all-equity cost of capital of 11.72 percent, a levered cost of equity of 12.94 p...

A: A firm raises finance from various sources typically debt and Equity. The ratio of debt finance to E...

Q: Use the Fisher Effect/equation. A $1,000 Par value, 3% Coupon bond with 10 years to maturity is tra...

A: The Fisher effect states that the nominal interest rate changes with the change in inflation. It is ...

Q: For the year ending December 31, 2017, sales for Company Y were $73.91 billion. Beginning January 1,...

A: Compounding is a method of charging interest in which Interest is charged on the amount including or...

Q: How long will it take to double your savings if you earn 3.6 percent interest, compounded annually? ...

A: The number of years required can be solved with the help of NPER function of Excel

Q: Consider the following information about a project: Calculate the NPV assuming 10% discount rate...

Q: A 91-day Treasury Bill with a face value of $150,000 is sold to yield 3.01 % p.a. What is the purcha...

A: A T-Bill is a money market instrument issued by the Treasury. The maturity date of such bills is les...

Q: Suppose your company wants to place an investment with a private equity firm with an amount of Php 2...

A: The present value of net adjusted cash flows generated over time by entering into a long-term invest...

Q: G, Total Asset Turnover Sales/ Total Assets g. Asset Turnover

A: The formula for the calculation of total asset turnover is as follows: Total asset turnover=SalesTot...

Q: For DePaul Inc. what is the return for year 2. Round to no decimal points and use the % symbol (27%....

A: As per our guidelines, we are supposed to answer only 3 sub-parts (if there are multiple sub-parts a...

Q: A machine has a life of 25 years, costs $250,000, and has a salvage value of $20,000 using straight-...

Q: Go to the Loan Calculator The cells in the range B6:B8 have defined names, but one is incomplete and...

A: Price = $1,150,000 Down Payment = $230,000 Rate = 4.45% Term in Months = 180

Q: ABC bank pays interest at the rate of 2% compounded quarterly. How much will Ken have in the bank at...

A: Interest rate = 2% Monthly interest rate (r) = [{1+(0.02/4)}4]1/12-1 ...

Q: A man pays 1.5% interest on his loan four times a year. Find the effective annual interest rate. 5. ...

A: “Hi There, Thanks for posting the questions. As per our Q&A guidelines, must be answered only on...

Q: Lincoln Company purchased merchandise from Grandville Corp. on September 30, 2021. Payment was made ...

A: Let 2021 be year 0 First annual payment in year 2024 (year 3) = A3 = $4200 Total payments = 6 r = 8%

Q: Question 5 A company had the following balance sheet as on 31 March, 2021: Lisbilities Pin Crores As...

Q: Bailey, Inc., is considering buying a new gang punch that would allow them to produce circuit boards...

A: MARR = 3.75% First Cost = 135,000 N = 15 Salvage Value = 0 Increase in annual labor costs = 4500 D...

Q: Tulld wortn today? (See Problem 3.) 4.3 Calculating Rates of Return You've been offered an investmen...

A: Assuming Investment = 100 Future Value = 2 times of investment = 2*100 = 200 N = 12

Q: A company expects to earn Rs.4.4 million in 2022, and 50% of this amount or Rs.2.2 million has been ...

Q: t Value for the question listed below, while the issue price is correct, I need help understanding h...

A: The price of bond is sum of present value of coupon payments and sum of present value of par value o...

Q: George is loaned $100,000 in Year 0. Approximately (round up to the nearest year) rs will it take hi...

A: Loan Amount = $100,000 Interest Rate = 4% Payment in 1 Year = $10,000

Q: Clfford has X dollars right now. In six years, X will be $3000 if it is invested at 5 percent, compo...

A: Given, the future value of X is $3000 Rate is 5%

Q: Do the task with the excel or manually if possible,thx If a family who owns a food stall is planning...

A: N = 36 months (3 years) Future Value Required = 13920.89 Income every month = 1392.09 Interest Rate ...

Q: polio years vely, the pol for nine years. What is the effective annual rate of interest paid? ... Th...

A: Given information : Expected benefit $12,000.00 Periodic payment $ 820.94 Time period ...

Q: Implication of fdi behaviour when GBP/USD is low.

A: Foreign direct investment can be defined as the type of investment made by a resident individual or ...

Q: You are allocating money equally among 25 stocks. You believe: All stocks have the same ...

A: The standard deviation of Equally weighted portfolio : = 1/N(Variance - Covariance)+Covariancewhere,...

Q: 1. Compute the average beta for the five firms in the acrospace/defense industry. 2. Now, compute th...

A: Investment appraisal involve appraising a new project or investment a company is going to undertake....

Q: Topic is Interests If A(t) = 100(1.1)t Find: a. i5 b. i10 Show complete solution with explanatio

Q: Required: 1. Assuming the note or shares of stock are issued at the beginning of the year, complete ...

A: Earnings Per Share: It represents the money made by a firm for each share of stock outstanding. EPS ...

Concept explainers

Consolidation

Consolidation in general examination implies an asset oscillating between well-defined methods of trading status. Consolidation is commonly known as market indecisiveness, which completes when the asset's values move forward or backward the trading structure.

Question

ACT Inc. has a $1,000 (face value), 30 year bond issue selling for $838.88 that pays an annual coupon of 10.0 percent. Their marginal tax rate is 25%.

a. What would be BAT's current before-tax component cost of debt?

Definition Definition Calculates the present value of a bond's expected future periodic coupon payments. Bond valuation determines the theoretical fair value of a particular bond and helps investors estimate what rate of return they could expect. The bond's theoretical fair value is computed by discounting the future cash flows or coupon payments by an applicable discount rate.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps with 2 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Brower Co. is considering the following alternative financing plans: Income tax is estimated at 40% of income. Determine the earnings per share of common stock, assuming that income before bond interest and income tax is 2,000,000.
ACT Inc. has a $1,000 (face value), 30 year bond issue selling for $719.90 that pays an annual coupon of 10.0 percent. Their marginal tax rate is 40%. a. What would be BAT's current before-tax component cost of debt? a. What would be BAT's current after-tax component cost of debt?
Lugget Corp. has one bond issue outstanding with an annual coupon of 4.4%, a face value of $1,000 and a price of $1,119.42, which matures in 10 years. The company's tax rate is 30%. 1. What is Lugget's pre-tax cost of debt? 2. What is the company's after-tax cost of debt?
Lugget Corp. has one bond issue outstanding with an annual coupon of 3.8%, a face value of $1,000 and a price of $983.78, which matures in 10 years. The company's tax rate is 25%. What is Lugget's pre-tax cost of debt?
Nobleford Inc. is trying to determine its cost of debt. The firm has a debt issue outstanding with 23 years to maturity that is quoted at 97% of face value. The issue makes semiannual payments and has an embedded cost of 5% annually. Assume the par value of the bond is $1,000. What is the company’s pre-tax cost of debt? If the tax rate is 35%, what is the after-tax cost of debt?
Lugget Corp. has one bond issue outstanding with an annual coupon of 4%, a face value of $1,000 and a price of $1,179.65, which matures in 10 years. The company's tax rate is 25%. What is the company's after-tax cost of debt?
Several years ago, the ABC Company sold a $1,000 par value bond that now has 15 years to maturity and a 6.50% annual coupon that is paid semiannually. The bond currently sells for $980 and the company's tax rate is 35%. What is the after-tax cost of debt
Red Oyster Seafood Company can issue a 30-year debt security that pays an annual coupon payment of $100. The bond carries a par value of $1,000 and is currently trading at par. Based on this information, determine the after-tax cost of Red Oyster’s debt if the firm’s marginal federal-plus-state tax rate is 35%. Red Oyster Seafood Company’s after-tax cost of debt (rounded to four decimal places) is:
Oberon, Inc. has a $20 million (face value) 10-year bond issue selling for 97 percent of par that pays an annual coupon of 8.25 percent.What would be Oberon’s before-tax component cost of debt? (Round your answer to 2 decimal places.)
Several years ago the Jakob Company sold a $1,000 par value, noncallable bond that now has 20 years to maturity and a 7.00% annual coupon that is paid semiannually. The bond currently sells for $950, and the companys tax rate is 40% what is the firm after tax cost of debt for use in the WACC calculations
A company has outstanding 20-year noncallable bonds with a face value of $1,000,an 11% annual coupon, and a market price of $1,294.54. If the company was to issuenew debt, what would be a reasonable estimate of the interest rate on that debt? Ifthe company’s tax rate is 40%, what is its after-tax cost of debt?
Viserion, Incorporated, is trying to determine its cost of debt. The firm has a debt issue outstanding with 28 years to maturity that is quoted at 106 percent of face value. The issue makes semiannual payments and has an embedded cost of 6 percent annually. What is the company's pretax cost of debt? multiple choice 1 5.57% 6.69% 4.24% 6.13% 5.02% If the tax rate is 24 percent, what is the aftertax cost of debt? multiple choice 2 4.24% 3.81% 4.66% 5.93% 5.57%