March of 2020 PepsiCo, Inc. (PEP) sold $750 million worth of 25-year 500% coupon bonds that pay semi-annual interest. At the time the bonds were issued, the market paid $1,004 21 per bond d. Pepsis corporate tax rate is 21% s before-tax and after-tax costs of debt? psis before tax and after tax costs of debt? tax cost of debt is (Round to two decimal places) cost of debt is (Round to two decimal places) wore-tax cost of debt is% (Round to two decimal places) ax cost of debt is (Round to two decimal places)

March of 2020 PepsiCo, Inc. (PEP) sold $750 million worth of 25-year 500% coupon bonds that pay semi-annual interest. At the time the bonds were issued, the market paid $1,004 21 per bond d. Pepsis corporate tax rate is 21% s before-tax and after-tax costs of debt? psis before tax and after tax costs of debt? tax cost of debt is (Round to two decimal places) cost of debt is (Round to two decimal places) wore-tax cost of debt is% (Round to two decimal places) ax cost of debt is (Round to two decimal places)

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter3: The Financial Environment: Markets, Institutions And Investment Banking

Section: Chapter Questions

Problem 19PROB

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.)
Income, Cash Flow, and Future Losses On January L 2017, Cermack National Bank loaned 55,000,000 under a 2-year, zero coupon note to a real estate developer. The bank recognized interest revenue on this note of approximately $400,000 per year. Due to an economic downturn, the developer was unable to pay the $5,800,000 maturity amount on December 31, 2018. The bank convinced the developer to pay $800,000 on December 31, 2018, and agreed to extend $5,000,000 credit to the developer despite the gloomy economic outlook for the next several years. Thus, on December 31, 2018, the bank issued a new 2-year, zero coupon note to the developer to mature on December 31, 2020, for $6,000,000. The bank recognized interest revenue on this note of approximately $500,000 per year. The banks external auditor insisted that the riskiness of the new loan be recognized by increasing the allowance for uncollectible notes by $1,500,000 on December 31, 2018, and $2,000,000 on December 31, 2019. On December 31, 20201 the bank received $1,200,000 from the developer and learned that the developer was in bankruptcy and that no additional amounts would be recovered. Required: Prepare a schedule showing the effect of the notes on net income in each of the 4 years.
Income, Cash Flow, and Future Losses On January L 2017, Cermack National Bank loaned 55,000,000 under a 2-year, zero coupon note to a real estate developer. The bank recognized interest revenue on this note of approximately $400,000 per year. Due to an economic downturn, the developer was unable to pay the $5,800,000 maturity amount on December 31, 2018. The bank convinced the developer to pay $800,000 on December 31, 2018, and agreed to extend $5,000,000 credit to the developer despite the gloomy economic outlook for the next several years. Thus, on December 31, 2018, the bank issued a new 2-year, zero coupon note to the developer to mature on December 31, 2020, for $6,000,000. The bank recognized interest revenue on this note of approximately $500,000 per year. The banks external auditor insisted that the riskiness of the new loan be recognized by increasing the allowance for uncollectible notes by $1,500,000 on December 31, 2018, and $2,000,000 on December 31, 2019. On December 31, 20201 the bank received $1,200,000 from the developer and learned that the developer was in bankruptcy and that no additional amounts would be recovered. Required: 1. Prepare a schedule showing annual cash flows fur the two notes in each of the 4 years.
Income, Cash Flow, and Future Losses On January L 2017, Cermack National Bank loaned 55,000,000 under a 2-year, zero coupon note to a real estate developer. The bank recognized interest revenue on this note of approximately $400,000 per year. Due to an economic downturn, the developer was unable to pay the $5,800,000 maturity amount on December 31, 2018. The bank convinced the developer to pay $800,000 on December 31, 2018, and agreed to extend $5,000,000 credit to the developer despite the gloomy economic outlook for the next several years. Thus, on December 31, 2018, the bank issued a new 2-year, zero coupon note to the developer to mature on December 31, 2020, for $6,000,000. The bank recognized interest revenue on this note of approximately $500,000 per year. The banks external auditor insisted that the riskiness of the new loan be recognized by increasing the allowance for uncollectible notes by $1,500,000 on December 31, 2018, and $2,000,000 on December 31, 2019. On December 31, 20201 the bank received $1,200,000 from the developer and learned that the developer was in bankruptcy and that no additional amounts would be recovered. Required: Which figure, net income or net cash flow, does the better job of telling the banks stock-holders about the effect of these notes on the bank? Explain by reference to the schedules prepared in Requirements 1 and 2.
Stevens Textile Corporations 2019 financial statements are shown here. Stevens grew rapidly in 2019 and financed the growth with notes payable and long-term bonds. Stevens expects sales to grow by 15% in the next year but will finance the growth with a line of credit, not notes payable or long-term bonds. Use the forecasted financial statement method to forecast a balance sheet and income statement for December 31, 2020. The interest rate on all debt is 10%, and cash earns no interest income. The line of credit is added at the end of the year, which means that you should base the forecasted interest expense on the balance of debt at the beginning of the year. Use the forecasted income statement to determine the addition to retained earnings. Assume that the company was operating at full capacity in 2019, that it cannot sell off any of its fixed assets, and that assets, spontaneous liabilities, and operating costs are expected to increase by the same percentage as sales. a. What is the projected value for earnings before interest and taxes? b. What is the projected value for pre-tax earnings? c. What is the projected net income? d. What is the projected addition to retained earnings? e. What is the projected value of total current assets? f. What is the projected value of total assets? g. What is the projected sum of accounts payable, accruals, and notes payable? h. What is the forecasted line of credit? Balance Sheet as of December 31, 2019 (Thousands of Dollars) Income Statement for December 31, 2019 (Thousands of Dollars)
Flotation costs and the cost of debt in March of 2020 PepsiCo, Inc. (PEP) sold $750 million worth of 30-year 3.75% coupon bonds that pay semi-annual interest. At the time the bonds were issued, the market paid $1,005.29 per bond and the flotation cost was $17.51 per bond. Pepsi's corporate tax rate is 21%.a. Ignoring flotation costs, what is Pepsi's before-tax and after-tax costs of debt? b. Considering flotation costs, what is Pepsi's before-tax and after-tax costs of debt?
Flotation costs and the cost of debt In March of 2020 PepsiCo, Inc. (PEP) sold $750 million worth ofb 20-year 3.75% coupon bonds that pay semi-annual interest. At the time the bonds were issued, the market paid $991.72 per bond and the flotation cost was $17.59 per bond. Pepsi's corporate tax rate is 21%. a. Ignoring flotation costs, what is Pepsi's before-tax and after-tax costs of debt? b. Considering flotation costs, what is Pepsi's before-tax and after-tax costs of debt?
Jones Cricket Institute issued a 30 year, 8 percent semi-annual bond 3 year ago. The bond currently sells for 93 percent of its face value. The Company’s tax rate is 35%. What is the pre-taxed cost of debt? What is the after tax cost of debt? Which is more relevant, the pre-tax or the after- tax cost of debt? Why? In question 3 above, suppose the book value of the debt issues is $60 million. In addition, the company has a second debt issue on the market, a zero coupon bond with 10 years to mature. The book value of this issue is $35 million and the bond sell for 57 percent of par. What is the company’s total book value of debt? The total market value? What is your best estimate of the after-tax cost of debt now?
Jones Cricket Institute issued a 30-year, 8 percent semi-annual bond 3 year ago. The bond currently sells for 93 percent of its face value. The Company’s tax rate is 35%. a. What is the pre-taxed cost of debt? b. What is the after-tax cost of debt? c. Which is more relevant, the pre-tax or the after- tax cost of debt? Why? In the question above, suppose the book value of the debt issues is $60 million. In addition, the company has a second debt issue on the market, a zero coupon bond with 10 years to mature. The book value of this issue is $35 million and the bond sell for 57 percent of par. a. What is the company’s total book value of debt? b. The total market value? c. What is your best estimate of the after-tax cost of debt now?
Jones Cricket Institute issued a 30 year, 8 percent semi-annual bond 3 year ago. The bond currently sells for 93 percent of its face value. The Company’s tax rate is 35%. a) What is the pre-taxed cost of debt? Answer % b) What is the after tax cost of debt? Answer % c) Which is more relevant, the pre-tax or the after- tax cost of debt? Why? Answer In the question above, suppose the book value of the debt issues is $60 million. In addition, the company has a second debt issue on the market, a zero coupon bond with 10 years to mature. The book value of this issue is $35 million and the bond sell for 57 percent of par. What is the company’s total book value of debt? $ Answer The total market value? $ Answer What is your best estimate of the after-tax cost of debt now? Answer %
Jones Cricket Institute issued a 30 year, 8 percent semi-annual bond 3 year ago. The bond currently sells for 93 percent of its face value. The Company’s tax rate is 35%.i) a. What is the pre-taxed cost of debt? b. What is the after tax cost of debt? c. Which is more relevant, the pre-tax or the after- tax cost of debt? Why? ii) In question above, suppose the book value of the debt issues is $60 million. In addition, the company has a second debt issue on the market, a zero coupon bond with 10 years to mature. The book value of this issue is $35 million and the bond sell for 57 percent of par.a. What is the company’s total book value of debt?b. The total market value?c. What is your best estimate of the after-tax cost of debt now?