Lionel Company has 1,500 units of bonds outstanding. Each unit has $100 face value, 6% coupon rate with semi-annual payments, and 15 years to maturity. The risk-free rate is 3%, default risk premium for its bond is 2%, maturity risk premium for 15-year maturity is 1.5 % & has a tax rate of 20%. 1. (a) Determine the required rate of return for its bonds, (b) the amount of tax savings, and (c) the after tax cost of debt. 2. Determine (a) the value of coupon payments, (b) the value of principal payment, and (c) total value of per unit of bond. (d) Determine total market value of all bonds outstanding.

Lionel Company has 1,500 units of bonds outstanding. Each unit has $100 face value, 6% coupon rate with semi-annual payments, and 15 years to maturity. The risk-free rate is 3%, default risk premium for its bond is 2%, maturity risk premium for 15-year maturity is 1.5 % & has a tax rate of 20%. 1. (a) Determine the required rate of return for its bonds, (b) the amount of tax savings, and (c) the after tax cost of debt. 2. Determine (a) the value of coupon payments, (b) the value of principal payment, and (c) total value of per unit of bond. (d) Determine total market value of all bonds outstanding.

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter13: Long-term Liabilities

Section: Chapter Questions

Problem 3EA: Krystian Inc. issued 10-year bonds with a face value of $100,000 and a stated rate of 4% when the...

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