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 9P
Bond Yield and After-Tax Cost of Debt
A company’s 6% coupon rate, semiannual payment, $1,000 par
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Bond Yield and After-Tax Cost of Debt
A company's 6% coupon rate, semiannual payment, $1,000 par value bond that matures in 25 years sells at a price of $587.6. The company's federal-plus-state tax rate is 40%. What is the firm's after-tax component cost of debt for purposes of calculating the WACC? (Hint: Base your answer on the nominal rate.) Round your answer to two decimal places.
DEBT: The firm can sell a 12‑year, 7%, P1,000 par value share for Php 960. A flotation cost of 2% of the face value would be required upon the issuance of the bond. Additionally, the firm's marginal tax rate is 40 percent.
*Using the approximation method, what is the after-tax cost of debt?
(Cost of debt) Carraway Seed Company is issuing a $1,000 par value bond that pays 8 percent annual interest and matures in 9 years. Investors are willing to pay $935 for the bond. Flotation costs will be 9 percent of market value. The company is in a 30 percent tax bracket. What will be the firm's after-tax cost of debt on the bond? The firm's after-tax cost of debt on the bond will be %. (Round to two decimal places.)
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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- CHALLENGE PROBLEM The long-term liabilities section of Guyton Enterprises follows. The bonds outstanding on January 1, 20-1, have an annual coupon rate of 4% and had been issued several years ago at a price to yield 5% per year. The discount is amortized using the effective interest method. On December 31, 20-1, 900,000, 5% bonds were issued at a price to yield 6%. REQUIRED Compute the cash received from issuing the bonds on December 31, 20-1. (Hint: If you have not covered the effective interest method, assume that bond interest expense for 20-1 was 44,767.)arrow_forwardHasting Corporation is interested in acquiring Vandell Corporation. Vandell has 1 million shares outstanding and a target capital structure consisting of 30% debt; its beta is 1.4 (given its target capital structure). Vandell has $10.82 million in debt that trades at par and pays an 8% interest rate. Vandell’s free cash flow (FCFJ is $2 million per year and is expected to grow at a constant rate of 5% a year. Vandell pays a 40% combined federal and state tax rate. The risk-free rate of interest is 5%, and the market risk premium is 6%. Hasting’s First step is to estimate the current intrinsic value of Vandell. What are Vandell’s cost of equity and weighted average cost of capital? What is Vandell’s intrinsic value of operations? [Hint: Use the free cash flow corporate valuation model from Chapter 8.) What is the current intrinsic value of Vandell’s stock?arrow_forwardA company’s 8 percent coupon rate, paid semiannually, $1,000 par value bond which mature in 30 years sells at a price of $887. The marginal tax rate is 40 percent. What is the firm’s after tax cost of debt?arrow_forward
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What is WACC-Weighted average cost of capital; Author: Learn to invest;https://www.youtube.com/watch?v=0inqw9cCJnM;License: Standard YouTube License, CC-BY