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.

Step 1

a.

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

Step 2

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

Step 3

The below table shows the calc...

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