JP Smith, Inc has an outstanding bond issue, which has eight years remaining to maturity and acoupon rate of 4.250%. Interest payments are made semi-annually, the firm's tax rate is .35, andthe bonds are currently trading at $1,018.00.a. What is the yield to maturity on the bonds?b. Ignoring flotation costs, what is the firm's cost of debt (before tax)?C.What is its after-tax cost of debt?

Par value = $ 1000 Coupon rate = 4.250% Semi annual coupon amount = 1000*0.0425*1/2 = $ 21.25 Years…

Answered: JP Smith, Inc has an outstanding bond…

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter11: The Cost Of Capital

Section: Chapter Questions

Problem 2PROB

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Similar questions

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Waylan Sisters Inc. issued 3-year bonds with a par value of $100,000 and a 6% annual coupon when the market rate of interest was 5%. If the bonds sold at 102.438, how much cash did Williams Sisters Inc. receive from issuing the bonds?
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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.)

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