Company XYZ has issued 65,000 zero-coupon bonds with a face value of $1,000. Those bonds will mature in 6 years and the current market price is $622.14 per bond. Investors use semi-annual compounding for bonds. Marginal corporate income tax rate is 21%, find the annual after-tax effective cost of debt.

Company XYZ has issued 65,000 zero-coupon bonds with a face value of $1,000. Those bonds will mature in 6 years and the current market price is $622.14 per bond. Investors use semi-annual compounding for bonds. Marginal corporate income tax rate is 21%, find the annual after-tax effective cost of debt.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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A pharmaceutical company will contract a new loan in the sum of $2,000,000 that is secured by machinery and the loan has an interest rate of 6 percent. The company has also issued 4,000 new bond issues with an 8 percent coupon, paid semi-annually, and matures in 10 years. The bonds were sold at par, and incurred floatation costof 2 percent per issue. 1. Calculate the cost of debt and the market value of debt.
Lugget Corp. has one bond issue outstanding with an annual coupon of 4%, a face value of $1,000 and a price of $1,179.65, which matures in 10 years. The company's tax rate is 25%. What is the company's after-tax cost of debt?
Melekom Berhad has 16 years to maturity bond with a RM1,000.00 par value.The bond pays RM7S.00 a year in interest and is selling for RMSSO.OO. Thecompany's tax rate is 25%.Calculate the approximate yield to maturity and the after tax cost of debt.
Sandhill has determined that it could issue $1050 face value bonds with an 8 percent coupon paid semiannually and a 5-year maturity at $954.05 per bond. If Sandhill's marginal tax rate is 36 percent, its after-tax cost of debt is closest to: 6.6 percent. 6.9 percent. 6.2 percent. 6.3 percent.
Debt Sanction Company's noncallable bonds were issued several years ago and now have 13 years to maturity. These bonds have a 6.5% annual coupon, paid annually, selling at a price of $958.21 per bond with a par value of $1,000. To raise more capital, the company will issue new 20-year bonds with a flotation cost of 6%. If the firm's tax rate is 30%, what is the yield to maturity of the existing bonds and what is the component cost of debt for use in the WACC calculation? YTM of existing bonds: % Cost of debt in WACC calculation: % (Express your answer in % and round to the second decimal place. For example, if your answer is 0.1234, write it as 12.34 and leave out the percentage sign.)
The 9 percent annual coupon bonds of the Jamesway Co. are selling for $1,008.20. The bonds have a face value of $1,000 and mature in 11 years. What is the before-tax cost of debt?
Dixon Corp has 6% coupon bonds outstanding that have a remaining maturity of 12 years. These bonds pay interest semiannually, and are currently selling for $1080 per $1000 face value. If Dixon issues new debt, it plans to sell bonds with a maturity of 12 years. Estimate Dixon's marginal post-tax cost of debt. Dixon faces a marginal tax rate of 30%. 3.06% 4.15% 4.35% 3.57% 2.90%
ABC Ltd.'s bonds sell for 90% of their face value (assume face value = $100). These bonds come with a coupon rate of 5%. The bonds will mature in 20 years and will pay the coupon semi-annually. Any interest income attracts a 15% tax for the investor. Determine the after-tax YTM for the investor.
The Textile Co. has an annual bond outstanding that matures in 8 years and carries a 7 percent coupon. The bond has a market value of $1,030.44. The company has a corporate tax rate of 35 percent. What is the aftertax cost of debt? 2.28 percent 4.23 percent 5.76 percent 6.50 percent

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