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Madoff Corporation raised money through a bond issue with a total principal value of $3,000,000. Each bond has a face (par) value of $1,000 and coupon rate of 6%. The company's applicable tax rate is 21%.a) What is the annual coupon payment bond holders expect to receive?b) What is total after-tax annual interest expense to the company? Please answer in excel also.

Question

Madoff Corporation raised money through a bond issue with a total principal value of $3,000,000. Each bond has a face (par) value of $1,000 and coupon rate of 6%. The company's applicable tax rate is 21%.

a) What is the annual coupon payment bond holders expect to receive?

b) What is total after-tax annual interest expense to the company? Please answer in excel also.

check_circleAnswer
Step 1

a.

The formula to calculate coupon payment received by bondholders is given below:

Coupon payment Par valuex Coupon rate
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Coupon payment Par valuex Coupon rate

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Step 2

Substitute $1,000 for par value and 6% for coupon rate in the above formula,

Coupon payment = $1,000 x 6%
=$60
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Coupon payment = $1,000 x 6% =$60

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Step 3

The below table shows the calc...

A
1 Par value of bond
1000
2 Coupon rate
Annual coupon payment
0.06
B1 B2
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A 1 Par value of bond 1000 2 Coupon rate Annual coupon payment 0.06 B1 B2

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