Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN: 9781337395083
Author: Eugene F. Brigham, Phillip R. Daves
Publisher: Cengage Learning
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Chapter 11, Problem 1P
After-Tax Cost of Debt
Calculate the after-tax cost of debt under each of the following conditions:
- a. rd of 13%, tax rate of 0%
- b. rd of 13%, tax rate of 20%
- c. rd of 13%, tax rate of 35%
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Calculate the after-tax cost of debt under each of the following conditions:(a) Interest rate, 12%; tax rate, 25%.(b) Interest rate, 14%; tax rate,34%.(c) Interest rate, 15%; tax rate,40%.
David Co has in issue 4% irredeemable debt quoted at $155 (ex-interest). The corporation tax rate is 35%.Required:-Calculate the return required by the debt providers and the cost ofdebt to David Co.
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Chapter 11 Solutions
Intermediate Financial Management (MindTap Course List)
Ch. 11 - Define each of the following terms:
Weighted...Ch. 11 - Prob. 2QCh. 11 - Prob. 3QCh. 11 - Distinguish between beta (i.e., market) risk,...Ch. 11 - Suppose a firm estimates its overall cost of...Ch. 11 - 11-1 After-Tax Cost of Debt
Calculate the...Ch. 11 - Prob. 2PCh. 11 - Cost of Preferred Stock
Duggins Veterinary...Ch. 11 - Prob. 4PCh. 11 - Prob. 5P
Ch. 11 - Prob. 6PCh. 11 - Prob. 7PCh. 11 - Prob. 8PCh. 11 - Bond Yield and After-Tax Cost of Debt A companys...Ch. 11 - Prob. 10PCh. 11 - Prob. 11PCh. 11 - Calculation of gL and EPS Spencer Suppliess stock...Ch. 11 - The Cost of Equity and Flotation Costs
Messman...Ch. 11 - Prob. 14PCh. 11 - WACC Estimation
On January 1, the total market...Ch. 11 - Prob. 16PCh. 11 - During the last few years, Jana Industries has...Ch. 11 - What is the market interest rate on Jana’s debt,...Ch. 11 - Prob. 3MCCh. 11 - Prob. 4MCCh. 11 - Prob. 5MCCh. 11 - Prob. 6MCCh. 11 - Prob. 7MCCh. 11 - Prob. 8MCCh. 11 - Prob. 9MCCh. 11 - Prob. 10MCCh. 11 - What procedures can be used to estimate the...Ch. 11 - Prob. 12MCCh. 11 - Prob. 13MCCh. 11 - Prob. 14MCCh. 11 - What four common mistakes in estimating the WACC...
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- Cost of Debt Financing Stinson Corporations cost of debt financing is 6%. Its tax rate is 30%. Required: Calculate the after-tax interest rate. (Vote: Round answer to one decimal place.)arrow_forwardAn overview of a firm's cost of debt To calculate the after-tax cost of debt, multiply the before-tax cost of debt by . Three Waters Company (TWC) can borrow funds at an interest rate of 10.20% for a period of six years. Its marginal federal-plus-state tax rate is 25%. TWC’s after-tax cost of debt is (rounded to two decimal places). At the present time, Three Waters Company (TWC) has 10-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,495.56 per bond, carry a coupon rate of 10%, and distribute annual coupon payments. The company incurs a federal-plus-state tax rate of 25%. If TWC wants to issue new debt, what would be a reasonable estimate for its after-tax cost of debt (rounded to two decimal places)? (Note: Round your YTM rate to two decimal place.) 3.38% 2.35% 2.94% 3.53%arrow_forwardTo calculate the after-tax cost of debt, multiply the before-tax cost of debt by(1 – T) . Andalusian Limited (AL) can borrow funds at an interest rate of 9.70% for a period of six years. Its marginal federal-plus-state tax rate is 25%. AL’s after-tax cost of debt is 7.28% (rounded to two decimal places). At the present time, Andalusian Limited (AL) has 5-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,050.76 per bond, carry a coupon rate of 10%, and distribute annual coupon payments. The company incurs a federal-plus-state tax rate of 25%. If AL wants to issue new debt, what would be a reasonable estimate for its after-tax cost of debt (rounded to two decimal places)? (Note: Round your YTM rate to two decimal place.) 7.84% 5.88% 6.53% 5.22%arrow_forward
- To calculate the after - tax cost of debt, multiply the before - tax cost of debt by(1-T). Water and Power Company (WPC) can borrow funds at an interest rate of 7.30% for a period of four years. Its marginal federal- plus - state tax rate is 25% WPC's after-tax cost of debt is (rounded to two decimal places). At the present time, Water and Power Company (WPC) has 5-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,438.04 per bond, carry a coupon rate of 14%, and distribute annual coupon payments. The company incurs a federal-plus- state tax rate of 25%. If WPC wants to issue new debt, what would be a reasonable estimate for its after - tax cost of debt (rounded to two decimal places)? (Note: Round your YTM rate to two decimal place.) 3.72% 3.57% 3.10% 2.48%arrow_forwardOutstanding debt of Home Depot trades with a yield to maturity of 6%.The tax rate of Home Depot is 30%.What is the effective cost of debt of Home Depot? A. 5.25% B. 4.2% C. 5.04% D. 4.62%arrow_forwardOutstanding debt of Home Depot trades with a yield to maturity of 8%. The tax rate of Home Depot is 30%. What is the effective cost of debt of Home Depot?arrow_forward
- To calculate the after-tax cost of debt, multiply the before-tax cost of debt by . Andalusian Limited (AL) can borrow funds at an interest rate of 9.70% for a period of four years. Its marginal federal-plus-state tax rate is 25%. AL’s after-tax cost of debt is (rounded to two decimal places). At the present time, Andalusian Limited (AL) has 5-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,229.24 per bond, carry a coupon rate of 10%, and distribute annual coupon payments. The company incurs a federal-plus-state tax rate of 25%. If AL wants to issue new debt, what would be a reasonable estimate for its after-tax cost of debt (rounded to two decimal places)? (Note: Round your YTM rate to two decimal place.) 3.20% 3.56% 4.27% 4.09%arrow_forward1. To calculate the after-tax cost of debt, multiply the before-tax cost of debt by ______. 2. Western Gas & Electric Company (WGC) can borrow funds at an interest rate of 12.50% for a period of six years. Its marginal federal-plus-state tax rate is 25%. WGC’s after-tax cost of debt is ________. (rounded to two decimal places). 3. At the present time, Western Gas & Electric Company (WGC) has 15-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,555.38 per bond, carry a coupon rate of 11%, and distribute annual coupon payments. The company incurs a federal-plus-state tax rate of 25%. If WGC wants to issue new debt, what would be a reasonable estimate for its after-tax cost of debt (rounded to two decimal places)? (Note: Round your YTM rate to two decimal place.) 4.73% 4.11% 4.93% 3.29%arrow_forward2) To calculate the after-tax cost of debt, multiply the before-tax cost of debt by ------ . Water and Power Company (WPC) can borrow funds at an interest rate of 9.70% for a period of four years. Its marginal federal-plus-state tax rate is 40%. WPC’s after-tax cost of debt is (rounded to two decimal places). At the present time, Water and Power Company (WPC) has 10-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,092.79 per bond, carry a coupon rate of 11%, and distribute annual coupon payments. The company incurs a federal-plus-state tax rate of 40%. If WPC wants to issue new debt, what would be a reasonable estimate for its after-tax cost of debt (rounded to two decimal places)? (Note: Round your YTM rate to two decimal place.) 4.57% 5.14% 5.71% 6.57%arrow_forward
- Determine the after-tax yield (i.e., IRR on the ATCF) obtained by an individual who purchases a $12,000, 10-year, 10% nominal interest rate bond. Given that interest is paid semi-annually, and the bond was bought after the fifth payment had just been received by the previous owner. The purchase price for the bond was $8,000. All revenues (including capital gains) are taxed at an income rate of 28%. The bond is held to maturity. Give answer to 2 d.p and please don't use excel.arrow_forwardMULTIPLE CHOICE Calculate the after-tax cost of debt under each of the following cases: (a) the interest rate is 10 percent, and the tax rate is 40 percent; (b) the interest rate is 11 percent, and the tax rate is 50 percent? A. (a)10% and (b)4.5%B. (a)5% and (b)5.5%C. (a)12% and (b)6.5%D. (a)6% and (b)5.5%E. None of the abovearrow_forwardTelecom Systems can issue debt yielding 7 percent. The company is in a 30 percent bracket. What is its aftertax cost of debt? (Input your answer as a percent rounded to 2 decimal places.)arrow_forward
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