Pearson eText Foundations of Finance -- Instant Access (Pearson+)
10th Edition
ISBN: 9780135639382
Author: Arthur Keown, John Martin
Publisher: PEARSON+
expand_more
expand_more
format_list_bulleted
Question
Chapter 9, Problem 4SP
Summary Introduction
To determine: The after tax cost of debt on the bond.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
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
(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.)
(Cost of debt) Carraway Seed Company is issuing a $1,000 par value bond that pays 11 percent annual interest and matures in 6 years. Investors are willing to pay $955 for the bond. Flotation costs
will be 11 percent of market value. The company is in a 38 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 9 Solutions
Pearson eText Foundations of Finance -- Instant Access (Pearson+)
Ch. 9 - Define the term cost of capital.Ch. 9 - Prob. 2RQCh. 9 - Why do firms calculate their weighted average cost...Ch. 9 - Prob. 4RQCh. 9 - Prob. 5RQCh. 9 - Prob. 6RQCh. 9 - Prob. 7RQCh. 9 - Prob. 1SPCh. 9 - Prob. 2SPCh. 9 - (Cost of equity) In the spring of 2018, the Brille...
Ch. 9 - Prob. 4SPCh. 9 - Prob. 5SPCh. 9 - Prob. 6SPCh. 9 - Prob. 7SPCh. 9 - (Cost of internal equity) Pathos Co.s common stock...Ch. 9 - (Cost of equity) The common stock for the Bestsold...Ch. 9 - Prob. 10SPCh. 9 - Prob. 11SPCh. 9 - Prob. 12SPCh. 9 - a. Rework Problem 9-12 as follows: Assume an 8...Ch. 9 - (Capital structure weights) Wingate Metal...Ch. 9 - (Weighted average cost of capital) The capital...Ch. 9 - Prob. 17SPCh. 9 - Prob. 18SPCh. 9 - Prob. 19SPCh. 9 - (Divisional costs of capital and investment...Ch. 9 - Prob. 21SPCh. 9 - Prob. 2.1MCCh. 9 - If you were to evaluate divisional costs of...
Knowledge Booster
Similar questions
- LLC International is issuing a $2,000 par value bond that pays 8 percent annual interest and matures in 10 years. Investors are willing to pay $1,800 for the bond. Floatation costs will be 4 percent of market value. The Company is in a 20 percent tax bracket. What will be the firm’s after-tax cost of debt on the bond??arrow_forwardNobleford Inc. is trying to determine its cost of debt. The firm has a debt issue outstanding with 23 years to maturity that is quoted at 97% of face value. The issue makes semiannual payments and has an embedded cost of 5% annually. Assume the par value of the bond is $1,000. What is the company’s pre-tax cost of debt? If the tax rate is 35%, what is the after-tax cost of debt?arrow_forwardCarraway Seed Company is issuing a $1,000 par value bond that pays 7 percent annual interest and matures in 15 years. Investors are willing to pay $850 for the bond. Floatation costs will be 3 percent of market value. The company is in a 21 percent tax bracket. What will be the firm’s after-tax cost of debt on the bond?arrow_forward
- Jimstan & Jimstan Corp. can sell a new 10-year bond with an annual coupon of 5% and a face value of $1,000 for $1,070. The company will incur flotation costs of $40 per bond and has a tax rate of 25%. What is the company's after-tax cost of debt? (use linear allocation method.)arrow_forwardSt. Thomas Company is planning to issue $1,000 par value bonds. The bonds will have a coupon rate of 9.5 percent and will be sold at a market price of $980. Flotation costs will amount to 4 percent of market value. The bonds will mature in 15 years and coupon payments will be semi-annual. St. Thomas' marginal tax rate is 35%. What is the firm's cost of debt financing?arrow_forwarda. Using the cost-of-debt approximation formula, determine the pre-tax cost for a bond that sells at $ 925 par value and that pays a coupon of $ 85 for 20 years. The flotation costs are $ 5 per bond. You will have to show the counts. b. For the above case, calculate the cost of debt after taxes if the company's tax liability is 40%. You will have to show the counts.arrow_forward
- The firm's tax rate is 40%. The firm plans to sell bonds having a par value of $1,000. The coupon rate would be 8%, paid in a single payment each year. The time to maturity would be 30 years. The firm believes that it can sell these bonds for $1,200, and that it will incur flotation costs of $15 per bond. What is the firm's after-tax cost of debt?arrow_forwardICU Window, inc, is trying to determine its cost of debt. The firm has a debt issue outstanding with 8 years to maturity that is quoted at 106.5 percent of face value. The issue makes semiannual payments and has an embedded cost of 6.4 percent annually. What is ICU's pretax cost of debt? If the tax rate is 23 percent, what is the aftertax cost of debt?arrow_forwardMojo Mining has a bond outstanding that sells for $2,120 and matures in 18 years. The bond pays semiannual coupons and has a coupon rate of 6.66 percent. The par value is $2,000. If the company's tax rate is 40 percent, what is the aftertax cost of debt?arrow_forward
- ICU Window, ing, is trying to determine its cost of debt. The firm has a debt issue outstanding with 10 years to maturity that is quoted at 104.5 percent of face value. The issue makes semiannual payments and has an embedded cost of 5.6 percent annually. What is ICU's pretax cost of debt? If the tax rate is 23 percent, what is the aftertax cost of debt?arrow_forwardojo Mining has a bond outstanding that sells for $2,084 and matures in 22 years. The bond pays semiannual coupons and has a coupon rate of 6.34 percent. The par value is $2,000. If the company's tax rate is 21 percent, what is the aftertax cost of debt? Please avoid answers in image thank youarrow_forwardKindly answer using the formula: Monster Limos plans to issue new bonds that have the same yield as its existing bonds, which have a coupon rate of interest equal to 4 percent (paid semiannually), eight years remaining until maturity, and a $1,000 maturity value. The existing bonds are currently selling for $886 each. What should be the coupon rate for the new bonds? If the firm’s marginal tax rate is 40 percent, what will be the after-tax cost of debt associated with the new debt (bonds)?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT