Assignment: Chapter 11 Cost of CapitalAttempts2. An overview of a firm's cost of debtKeep the Highest/3To calculate the after-tax cost of debt, multiply the before-tax cost of debt byThree Waters Company (TWC) can borrow funds at an interest rate of 12.50% (2+T)od of four years. Its marginal federal-plus-state tax rate is40%. TWC's after-tax cost of debt is(rounded to two decimal(1-T)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 havea current market price of $1,278.41 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 TWC wants to issue new debt, what would be a reasonable estimate for its after-tax cost of debt (rounded to twdecimal places)?O4.22%O 3.80 %O 5.06%4.85%

Cost of debt refers to the effective rate of return that a company is providing to its debtors for…

Answered: Attempts 2. An overview of a firm's…

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter9: Long-term Liabilities

Section: Chapter Questions

Problem 60BE

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2. An overview of a firm's cost of debt To calculate the after-tax cost of debt, multiply the before-tax cost of debt by Perpetualcold Refrigeration Company (PRC) can borrow funds at an interest rate of 12.50% for a period of four years. Its marginal federal-plus-state tax rate is 25%. PRC's after-tax cost of debt is (rounded to two decimal places). At the present time, Perpetualcold Refrigeration Company (PRC) 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 PRC 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% 3.53% 2.94% 2.35%
Attempts ܀ 2. An overview of a firm's cost of debt The before-tax cost of debt ▸ Blue Hamster Manufacturing (BHM) can borrow funds at an interest rate of 7.30% for a period of five years. Its marginal federal-plus-state tax rate is 35%. BHM's after-tax cost of debt is (rounded to two decimal places). Keep the Highest/3 O 6.99% O 5.59% At the present time, Blue Hamster Manufacturing (BHM) has a series of twenty-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,181.96 per bond, carry a coupon rate of 13%, and distribute annual coupon payments. The company incurs a federal-plus-state tax rate of 35%. If BHM wants to issue new debt, what would be a reasonable estimate for its after-tax cost of debt (rounded to two decimal places)? O 6.29% O 8.04% is the interest rate that a firm pays on any new debt financing.
2. An overview of a firm's cost of debt To calculate the after-tax cost of debt, multiply the before-tax cost of debt by (1-T). Western Gas & Electric Company (WGC) can borrow funds at an interest rate of 11.10% for a period of six years. Its marginal federal-plus-state tax rate is 25%. WGC's after-tax cost of debt is 8.32% (rounded to two decimal places). At the present time, Western Gas & Electric Company (WGC) 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 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.) 2.94% 2.35% 2.65% 3.38%
An 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%
1. An 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 9.70% 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 15-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,329.55 per bond, carry a coupon rate of 12%, 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.) 5.48% 4.87% 7.00% 6.09%
Weighted Average Cost of Capital (WACC) using Table (Problem 11 in text) Financing Source Dollar Amount % Weight Interest Cost of Rate Capital After Tax Cost (D X (1-tax rate) Component to Sum (FXC) Short Term Note $ 200,000.00 15% Long Term Note $ 300,000.00 18% Equity Capital $ 500,000.00 25% Assumes 30% Tax Rate SOLVE FOR YELLOW HIGHLIGHTED BLOCKS WACC
An overview of a firm's cost of debt For which capital component must you make a tax adjustment when calculating a firm’s weighted average cost of capital (WACC)? Pick the correct choice. A- Preferred stock B- Equity C- Debt Three Waters Company (TWC) can borrow funds at an interest rate of 12.50% for a period of five years. Its marginal federal-plus-state tax rate is 45%. TWC’s after-tax cost of debt is_________% (rounded to two decimal places). At the present time, Three Waters Company (TWC) has 15-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,136.50 per bond, carry a coupon rate of 12%, and distribute annual coupon payments. The company incurs a federal-plus-state tax rate of 45%. 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)? Pick the correct choice. 5.60% 5.04%…
what is a suggestion concerning the proprtion of debt that the firm should utilize in capital structure? Benefit (cost) No Debt 25% Debt 50% Debt 75% Debt Tax shield $0 $10 $20 $30 Agency Cost ($10) ($5) ($5) ($20) Financial distress Cost ($1) ($3) ($10) ($10)
3. Indicate on this sheet how you know that this proforma has positive or negative financial leverage and positive or negative operating leverage. Show your work. Before tax cash flows Office Example GENERAL DATA BUILDING DATA Purchase Price Loan % $9,000,000.00 75.00% Bldg RSF 100000 Reversion Data Going Out OE/RSF $8.00 Cap Rate 10.50% Loan Amount $6,750,000.00 Rents PSF $18.00 Interest Rate/yr 9.50% Monthly Constant (Rm) 0.0079167 INITIAL EQUITY Investors Discount Rate Term/years 25 Price $9,000,000.00 15.00% Term/months 300 Loan $6,750,000.00 Monthly PMT $58,975 Initial Investment $2,250,000.00 Annual DS $707,694 Before Tax CASH FLOWS Potential Gross Income Year 1 $1,800,000 Year 2 $1,890,000 Year 3 $1,984,500 Year 4 $2,083,725 Year 5 $2,187,911 Year 6 $2,297,307 Vacancy & Credit Losses Other Income Effective Gross Income Operating Expenses Net Operating Income $90,000 $94,500 $0 $0 $99,225 $0 $104,186 $0 $109,396 $0 $114,865 $0 $1,710,000 $1,795,500 $1,885,275 $1,979,539…
u are given the following information concerning a firm: sets required for operation: $5,700,000 evenues: $8,600,000 berating expenses: $8,100,000 come tax rate: 40%. anagement faces three possible combinations of financing: 1. 100% equity financing 2. 35% debt financing with a 5% interest rate 3. 70% debt financing with a 5% interest rate a. What is the net income for each combination of debt and equity financing? Round your answers to the nearest dollar. 1 Net income $ 2 3 $ b. What is the return on equity for each combination of debt and equity financing? Round your answers to one decimal place. Return on equity 1 2 3 % % % c. If the interest rate had been 10 percent instead of 5 percent, what would be the return on equity for each combination of debt and equity financing? Round your answers to one decimal place. Return on equity 1 2 3 % % % d. What is the implication of the use of financial leverage when interest rates change? The use of financial leverage is likely to -Select- the…
Assume a firm has EBAT of $590,000, and no amortization. It is in a 40 percent tax bracket. a. Compute its cash flow. $ 354,000 b. Assume it has $590,000 in amortization. Recompute its cash flow. $ 590,000 c. How large a cash flow benefit did the amortization provide? $T] Cash flow Cash flow Benefit in cash flow
Consider the following data for the firms Acme and Apex: Acme Apex Required: Equity Debt ($ million) ($ million) 210 1,050 105 350 ROC Cost of Capital (*) (%) 17% 9% 15% 10% a-1. Calculate the economic value added for Acme and Apex. a-2. Which firm has the higher economic value added? b-1. Calculate the economic value added per dollar of invested capital for Acme and Apex. b-2. Which firm has the higher economic value added per dollar of invested capital? Answer is not complete. Complete this question by entering your answers in the tabs below. Required A1 Required A2 Required B1 Required B2 Calculate the economic value added for Acme and Apex. Note: Enter your answers in millions rounded to 2 decimal places. Economic value added for Acme million Economic value added for Apex million

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