Before-tax cost of debt 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 different prices. The firm must choose among several alternatives. In each case, the bonds will have a $1,000 par value and flotation costs will be $35 per bond. Calculate the before-tax cost of financing with the following alternative. (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Coupon rate Time to maturity Premium or discount 12% 19 years $290 The before-tax cost of debt is ______ %. (Round to two decimal places.)

Before-tax cost of debt 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 different prices. The firm must choose among several alternatives. In each case, the bonds will have a $1,000 par value and flotation costs will be $35 per bond. Calculate the before-tax cost of financing with the following alternative. (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Coupon rate Time to maturity Premium or discount 12% 19 years $290 The before-tax cost of debt is ______ %. (Round to two decimal places.)

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter9: Long-term Liabilities

Section: Chapter Questions

Problem 60BE

See similar textbooks

Similar questions

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.)
Before-tax cost of debt 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 different prices. The firm must choose among several alternatives. In each case, the bonds will have a $1,000 par value and flotation costs will be $40 per bond. Calculate the before-tax cost of financing with the following alternative. (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Coupon rate Time to maturity Premium or discount 7% 17 years −$210
Assume that you were recently hired as assistant to Jerry Lehman, financial VP of Coleman Technologies. Your first task is to estimate Coleman’s cost of capital. Lehman has provided you with the following data, which he believes is relevant to your task: Questions: The firm’s marginal tax rate is 40%. The current price of Coleman’s 12 % coupon, semiannual payment, noncallable bonds with 15 years remaining to maturity is $1,153.72. Coleman does not use short-term interest-bearing debt on a permanent basis. New bonds would be privately placed with no flotation cost. The current price of the firm’s 10%, $100 par value, quarterly dividend, perpetual preferred stock is $113.10. Coleman would incur flotation costs of $2 per share on a new issue. Coleman’s common stock is currently selling at $50 per share. Its last dividend (D0) was $4.19, and dividends are expected to grow at a constant rate of 5% in the foreseeable future. Coleman’s beta is 1.2, the yield on Treasury bonds is 7%, and the…
Assume that you were recently hired as assistant to Jerry Lehman, financial VP of Coleman Technologies. Your first task is to estimate Coleman’s cost of capital. Lehman has provided you with the following data, which he believes is relevant to your task: The firm’s marginal tax rate is 40%. The current price of Coleman’s 12 % coupon, semiannual payment, noncallable bonds with 15 years remaining to maturity is $1,153.72. Coleman does not use short-term interest-bearing debt on a permanent basis. New bonds would be privately placed with no flotation cost. The current price of the firm’s 10%, $100 par value, quarterly dividend, perpetual preferred stock is $113.10. Coleman would incur flotation costs of $2 per share on a new issue. Coleman’s common stock is currently selling at $50 per share. Its last dividend (D0) was $4.19, and dividends are expected to grow at a constant rate of 5% in the foreseeable future. Coleman’s beta is 1.2, the yield on Treasury bonds is 7%, and the market risk…
Integrative Case Assume that you were recently hired as assistant to Jerry Lehman, financial VP of Coleman Technologies. Your first task is to estimate Coleman’s cost of capital. Lehman has provided you with the following data, which he believes is relevant to your task: Questions: The firm’s marginal tax rate is 40%. The current price of Coleman’s 12 % coupon, semiannual payment, noncallable bonds with 15 years remaining to maturity is $1,153.72. Coleman does not use short-term interest-bearing debt on a permanent basis. New bonds would be privately placed with no flotation cost. The current price of the firm’s 10%, $100 par value, quarterly dividend, perpetual preferred stock is $113.10. Coleman would incur flotation costs of $2 per share on a new issue. Coleman’s common stock is currently selling at $50 per share. Its last dividend (D0) was $4.19, and dividends are expected to grow at a constant rate of 5% in the foreseeable future. Coleman’s beta is 1.2, the yield on Treasury…
The effect of tax rate on WACC K. Bell Jewelers wishes to explore the effect on its cost of capital of the rale at which the compary pays taxes. The firm wishes to maintain a capital structure of40%debt,10%preferred stock,and50%common stock. The cost of financing with retaked eamings is18%, the cost of prefered stock finaneing is 9%, and the before-tax cost of debt financing is7%. Calculate the weighted average cost of capial (WACC) given a tax rate of 35%. The firmis WACC is ?%. (Round to two docinal places)
1) Your firm wishes to issue a 20-year bond, an annual coupon of 6%, and the price has been determined to be RM880. The floatation cost of the issuance is 2% of the selling price. The tax rate is 24%. a) The net selling price is RM________. b) Annual YTM is ________% c) After tax cost of debt is ______% Answer by using formula not a Excel don't use chatgpt
Calculate the after-tax cost of debt under each of the following conditions: rdof 13%, tax rate of 0% 2. rdof 13%, tax rate of 20% 3. rdof 13%, tax rate of 35% 9-2 LL Incorporated’s currently outstanding 11% coupon bonds have a yield to maturity of 8%. LL believes it could issue new bonds at par that would provide a similar yield to maturity. If its marginal tax rate is 35%, what is LL’s after-tax cost of debt? 9-3 Duggins Veterinary Supplies can issue perpetual preferred stock at a price of $50 a share with an annual dividend of $4.50 a share. Ignoring flotation costs, what is the company’s cost of preferred stock, rps?
After-Tax Cost of Debt LL Incorporated's currently outstanding 8% coupon bonds have a yield to maturity of 5.8%. 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.
If the cost of debt for Sohar Textiles is 8.9% (effective rate) and the after-tax cost of debt is 0.066, what is the tax rate? Select one: a. 0.258 b. 0.023 c. 1.742 d. 0.155 e. All the given choices are not corre The difference between current assets and current liabilities of a business concern is termed as Select one: a. Preferred stocks b. Loans c. None of the options d. Working capital e. Bonds
(Cost of debt) Sincere Stationery Corporation needs to raise $500,000 to improve its manufacturing plant. It has decided to issue a $1,000 par value bond with an annual coupon rate of 10 percent with interest paid semiannually and a 10-year maturity. Investors require a rate of return of 9 percent. a. Compute the market value of the bonds. b. How many bonds will the firm have to issue to receive the needed funds? c. What is the firm's after-tax cost of debt if the firm's tax rate is 34 percent?
a. Using the cost-of-debt approximation formula, determine the pre-tax cost for a bond that sells at $ 925 par value and that pays a coupon of $ 85 for 20 years. The flotation costs are $ 5 per bond. You will have to show the counts. b. For the above case, calculate the cost of debt after taxes if the company's tax liability is 40%. You will have to show the counts.