Answered: The yield to maturity is 10%.…

The yield to maturity is 10%. The.corporate tax rate is 31%. What would be the approximate after-tax cost of debt for a new issue of bonds? O 5.28% O 248% O 6.90% O 3.14%

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter11: Determining The Cost Of Capital

Section: Chapter Questions

Problem 14P

See similar textbooks

Related questions

Q: The Lewin Inc. has issued 60,000 bonds with an 8% coupon rate and a quoted price of 110; the bonds…

A: Given: Particulars Amount Face value(FV) $1,000 Years(NPER) 30 Quoted price 110% Coupon…

Q: You observe the following 1-year yields on a corporate and government bonds over the course of…

A: The Expected annual percentage is calculated as follows by taking the average of of yields of…

Q: The Holmes Company's currently outstanding bonds have an 8% coupon and a 13% yield to maturity.…

A: After tax cost of debt = Before tax cost of debt * (1-taxrate)

Q: What is the discount yield, bond equivalent yield, and effective annual return on a $4 million…

A: Introduction Discount Yield: The discount yield is a percentage-based method of measuring a bond's…

Q: The following is the information on debt issued by Huntington Power Co. Calculate the after-tax cost…

A: Interest on debt is a tax deductible expense, that's why after tax cost of debt is taken.

Q: Lepus has issued bonds of $100 nominnal value with annual interest of 9%per year, based on the…

A: Since you have asked multiple questions, we will solve the first question for you. If you want any…

Q: A firm sold a 10-year bond issue 3 years ago. The bond has a 6.45% annual coupon and a $1,000 face…

A: The before tax cost of debt can be calculated as the yield to maturity of the bond. In this case,…

Q: CEPS Group has bonds outstanding with a 6.61 percent nominal yield to maturity. The current rate of…

A: Real rate of return is the rate according to which the prices of the bond are adjusted considering…

Q: A company has outstanding long-term bonds with a face value of$1,000, a 10% coupon rate, 25 years…

A: COUPON RATE 10.00% YEARS OR PERIOD 25 PRESENT VALUE 1214.82 TAX 40% FACE VALUE 1000

Q: DQ, Inc. expects EBIT to be approximately $11.4 million per year for the foreseeable future, and it…

A: EBIT - $11.40 million Bond :no of bonds- 20,000 Interest rate -10% Face value - $1000 Annual…

Q: A firm has a bond outstanding Rs. 3,00,00,000. The bond has 12 years remaining until maturity, has a…

A: In order to raise capital company issues bonds or stock. In comparison to equity, bond financing is…

Q: Your company is borrowing $5,800,000 in the form of bonds. The par value and market value are the…

A: Bonds are debt securities issued by Government or other companies, who seek to raise money from…

Q: Ying Import has several bond issues outstanding, each making semiannual interest payments. The bonds…

A: The question is based on the concept of Financial Management.

Q: The Holmes Company's currently outstanding bonds have a 10% coupon and a 14% yield to maturity.…

A: The cost of raising the funds through borrowing or the financing cost is termed as the required rate…

Q: Calculate the after-tax cost of debt under each of the following conditions: rdof 13%, tax rate of…

A: 1. After tax cost of debt = Cost of debt * (1- Tax rate) After tax cost of debt = 13% * (1-0%) After…

Q: Ladder Works has debt outstanding with a coupon rate of 6 percent and a yield to maturity of 6.8…

A: Cost of Debt It is the cost of raising capital of debt sources by the issuer(company).…

Q: maturity

A: Formula to calculate YTM is: C+F - P n F + P 2 Where C is the coupon payment, F is the face…

Q: Cote Import has several bond issues outstanding, each making semiannual interest payments. The bonds…

A: Using excel RATE function

Q: Simple Corp. has one bond issue oustanding, with a maturity of 10.5 years, a coupon rate of 3.6% and…

A: Here, Maturity = 10.5 years Coupon rate = 3.6% Yield to maturity = 5.4% Average tax rate = 18%…

Q: The coupon rate on an issue of debt is 8%. The yield to maturity on this issue is 10%. The corporate…

A: Information Provided: Coupon rate = 8% Yield to maturity = 10% Tax rate = 21%

Q: After-Tax Cost of Debt LL Incorporated's currently outstanding 11% coupon bonds have a yield to…

A: Pre tax cost of debt = YTM of new bonds = 8.3% Tax rate = 25%

Q: Mex Limited issued 12,000 outstanding bonds.The bonds have the following characteristics: Face…

A: After Cost of Debt = Total Interest Cost Incurred * (1 - Effective Tax rate) / Total Debt * 100…

Q: Lionel Company has 1,500 units of bonds outstanding. Each unit has $100 face value, 6% coupon rate…

A: Here, Units of Bond is 1,500 Face Value of Each Bond is $100 Coupon Rate is 6% Coupon Compounding…

Q: If a 5 year annual bond with a 6% coupon rate, currently priced at $988 and par value is $1000, what…

A: Borrowings are the liability of the company which is used to finance the requirement of the funds.…

Q: a. A bond that has a $1,000 par value (face value) and a contract or coupon interest rate of 12.1…

A: Solution of a. Face Value = $1000 Coupon Rate = 12.1% payment semi annually Coupon Amount…

Q: What would be BAT's current before-tax component cost of debt? a. What would be BAT's current…

A: Cost of Debt: It is the cost of raising debt capital for the company and the such cost of debt is…

Q: AXYZ Co's. bond has a $1,000 face value and a coupon rate of 6.2% paid annually. The firm's marginal…

A: Calculation of cost of debt after tax:Answer:Cost of debt after-tax rate is 4.03% and 4.65%, tax cut…

Q: Using the cost-of-debt approximation formula, determine the pre-tax cost for a bond that sells at $…

A: a) The question gives the following information:

Q: Simple Corp. has one bond issue oustanding, with a maturity of 10.5 years, a coupon rate of 3.6% and…

A: For a bond Yield to maturity shows the effective interest payment on the bond.

Q: ABC Co. has $15 million of debt outstanding with a coupon rate of 9%. Currently, the yield to…

A: In the given question we require to compute the after-tax cost of debt.

Q: Outstanding debt of Home Depot trades with a yield to maturity of 8%. The tax rate of Home Depot is…

A: Cost of debt: The minimum rate of return that a debt holder expects to earn from the debt…

Q: a. The after-tax cost of debt using the bond's yield to maturity (YTM) is 12.13%. (Round to two…

A: WACC or weighted average cost of capital = (Weight of debt*After tax cost of debt) + (Weight of…

Q: Ying Import has several bond issues outstanding, each making semiannual interest payments. The bonds…

A: Here, To Find: After-tax cost of the company's debt =?

Q: The Holmes Company's currently outstanding bonds have an 8% coupon and a 13% yield to maturity.…

A: Cost of debt: A bond is an organization's source of funds. The firm issues the bonds to investors…

Q: LL Incorporated's currently outstanding 8% coupon bonds have a yield to maturity of 5.7%. LL…

A: Debt is an obligation for the company for which an interest has to be paid by the company.

Q: The Holmes Company’s currently outstanding bonds havean 8% coupon and a 10% yield to maturity.…

A: The cost of raising the funds through borrowing that helps to deduct the taxable income is term as…

Q: Melekom Berhad has 16 years to maturity bond with a RM1,000.00 par value. The bond pays RM7S.00 a…

A: Note: Here it is assumed that the Interest amount is RM75 per year and the selling price is RM550.…

Q: The Holmes Company's currently outstanding bonds have a 10% coupon and a 13% yield to maturity.…

A: Calculate the after tax cost of debt as follows: After tax cost of debt = Yield to maturity *(1-Tax…

Q: LL Incorporated's currently outstanding 10% coupon bonds have a yield to maturity of 7.5%. LL…

A: We have to use the following formula to calculate the after-tax cost of debt: After-tax cost of debt…

Q: PDQ, Inc. expects EBIT to be approximately $12.2 million per year for the foreseeable future, and it…

A: Operating profit ia known also knows as Earnings Before Interest and Taxes. Net Income os calculated…

Q: The Holmes Company's currently outstanding bonds have a 10% coupon and a 10% yield to maturity.…

A: Given Information: Coupon rate is 10% YTM is 10% Marginal tax rate is 25%

Q: A bond with a $1,000 par value and a contract or coupon interest rate of 11%. A new issue would have…

A: Dear student, as per Bartleby guidelines a subject expert can answer only one at a time question, if…

Q: The 9 percent annual coupon bonds of the Jamesway Co. are selling for $1,008.20. The bonds have a…

A: The cost of raising the funds through borrowing or the financing cost is termed as the required rate…

Q: A 7.5% percent annual coupon bond with 20 years to maturity, selling for 104 percent of par. The…

A: Concept: The after-tax cost rate of debt is defined as the interest paid on debt based on less…

Q: A $1,000 per value bond with a 5.8% coupon and semi-annual interest payments has 25 years to…

A: Given data, Face Value = $1000 Coupon rate = 5.8% Maturity = 25 years Current price = $1122.75

Question

The yield to maturity is 10%. The.corporate tax rate is 31%. What would be the approximate after-tax cost of debt for a new
issue of bonds?
O 5.28%
O 248%
O 6.90%
O 3.14%

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

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.)
The coupon rate on an issue of debt is 8%. The yield to maturity on this issue is 10%. The corporate tax rate is 21%. What would be the approximate after-tax cost of debt for a new issue of bonds?
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?
Melekom Berhad has 16 years to maturity bond with a RM1,000.00 par value.The bond pays RM7S.00 a year in interest and is selling for RMSSO.OO. Thecompany's tax rate is 25%.Calculate the approximate yield to maturity and the after tax cost of debt.
Company B has $50 million of bonds outstanding (face value). These are 10-year bonds, and they are currently selling at 98% of par. The annual coupon rate on the bond issue is 4%. What would be Company B’s before-tax component cost of debt? If company B has a tax-rate of 25%, what is their after-tax cost of debt?
If a 5 year annual bond with a 6% coupon rate, currently priced at $988 and par value is $1000, what is the cost of debt before tax? For the question above, if the tax rate is 30%, how much is the after tax cost of debt?
What is the after tax cost of debt if the company's bond with a coupon rate of 9% is selling above par at $1050,and the bond will mature in 19 years. The firm's tax bracket is 30%. (L1).
Beckham Corporation has semiannual bonds outstanding with 15 years to maturity and the bonds are currently priced at $846.16. If the bonds have a coupon rate of 8.5 percent, then what is the after-tax cost of debt for Beckham if its marginal tax rate is 35%? 5.283% 6.868% 10.401% 7.655%
A company's 5-year bonds are yielding 8.35% per year. Treasury bonds with the same maturity are yielding 7.15% per year, and the real risk-free rate (r*) is 2.90%. The average inflation premium is 3.85%, and the maturity risk premium is estimated to be 0.1 x (t - 1)%, where t = number of years to maturity. If the liquidity premium is 0.9%, what is the default risk premium on the corporate bonds? Round your answer to two decimal places.
A company's 5-year bonds are yielding 8.25% per year. Treasury bonds with the same maturity are yielding 5.2% per year, and the real risk-free rate (r*) is 2.75%. The average inflation premium is 2.05%, and the maturity risk premium is estimated to be 0.1(t - 1)%, where t = number of years to maturity. If the liquidity premium is 0.7%, what is the default risk premium on the corporate bonds? Round your answer to two decimal places.
The yield to maturity on SodaFizz’s debt is 7.2%. If the company’s marginal tax rate is 21%, what is SodaFizz’s effective cost of debt?
. ABC Co. has $15 million of debt outstanding with a coupon rate of 9%. Currently, the yield to maturity on these bonds is 7%. If the firm’s tax rate is 35%, what is the after-tax cost of debt? A. 10.76% B. 5.85% C. 4.55% D. 5.40%