Contemporary Financial Management
14th Edition
ISBN: 9781337090582
Author: R. Charles Moyer, James R. McGuigan, Ramesh P. Rao
Publisher: Cengage Learning
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Chapter 12, Problem 2P
Summary Introduction
To determine: The after-tax cost of debt.
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Husky Enterprises recently sold an issue of 15-year maturity bonds. The bonds were sold at a deep discount price of $535 each. After flotation costs, Husky received $515.41 each. The bonds have a $1,000 maturity value and pay $55 interest at the end of each year. Compute the after-tax cost of debt for these bonds if Husky’s marginal tax rate is 40 percent. Use Table II and Table IV to answer the question. Round your answer to one decimal place.
%
Husky Enterprises recently sold an issue of 13-year maturity bonds. The bonds were sold at a deep discount price of $625 each. After flotation costs, Husky received $609.64 each. The bonds have a $1,000 maturity value and pay $45 interest at the end of each year. Compute the after-tax cost of debt for these bonds if Husky’s marginal tax rate is 40 percent. Use Table II and Table IV to answer the question. Round your answer to one decimal place.
Tables 2 and 4 are attached. Thank you.
Seoul Food Supplies Corporation sold an issue of 10-year bonds.
The bonds sold at a $980 price each. The issuance costs is $4 for each bond. That is, after issuance costs, Seoul Food Supplies received $976 each.
The face value of the bond is $1,000. The coupon rate is 8% and paid annually.
What is the after-tax cost of debt for these bonds if Seoul Food Supplies’ marginal tax rate is 40%?
Chapter 12 Solutions
Contemporary Financial Management
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