Suppose a firm's debt is selling for one-half of its face value of $1,000. It matures in 10 years and has a coupon rate of 5%. To the nearest percent, what is the pre-tax cost of this firm's debt? O 11% 12% O 13% 15%
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- A firm will earn a taxable net return of $500 million next year. If it took on debt today, it would have to pay creditors\varepsilon(rDebt) = 5% + 10% x wDebt2. Thus, if the firm has 100% debt, the financial markets would demand 15% expected rate of return. Further, assume that the financial markets will lend the firm capital at this overall net cost of 15%, regardless of how the firm is financed. The firm is in the 25% marginal tax bracket. 1. If the firmis fully equity-financed, what is its value? 2. Using APV, if the firm is financed with equal amounts of debt and equity today, what is its value? 3. Using WACC, if the firm is financed with equal amounts of debt and equity today, what is its value? 4. Does this firm have an optimal capital structure? If so, what is its APV and WACC?Suppose a company will issue new 20-year debt with a par value of $1,000and a coupon rate of 9%, paid annually. The issue price will be $1,000. Thetax rate is 40%. If the flotation cost is 2% of the issue proceeds, then whatis the after-tax cost of debt? What if the flotation costs were 10% of thebond issue?What is the after tax cost of debt if the company's bond with a coupon rate of 9% is selling above par at $1050,and the bond will mature in 19 years. The firm's tax bracket is 30%. (L1).
- What are the market interest rate on Coleman's debt and its component cost of debt? Coupon rate= 12% Coupons per year = 2 Years to maturity = 15 Price = $1,153.72 Tax rate = 40% The Market interest rate of debt is 10% (5% * 2) , Can you give me a step by step computation (manually) of the 5% rate? Thank you so much!3. Avicorp has a $12.3 million debt issue outstanding, with a 6.1% coupon rate. The debt has semi-annual coupons, the next coupon is due in six months, and the debt matures in five years. It is currently priced at 95% of par value. a. What is Avicorp's pre-tax cost of debt? Note: Compute the effective annual return. b. If Avicorp faces a 40% tax rate, what is its after-tax cost of debt? Note: Assume that the firm will always be able to utilize its full interest tax shield. **round to four decimal places**Consider a firm that expects to generate the following earnings stream over the next five years. The terminal value in Year 5 is based on a multiple of 15 times that year's earnings. Year 1 P50,000 Year 2 P60,000 Year 3 P65,000 Year 4 P70,000 Year 5 P750,000 (terminal value) Using a discount rate of 8%, what is the present value of the firm? What is the present value if the terminal value is based on 10 times Year 5 earnings?
- Let us assume that an investor can obtain an 80% LTV loan for a property valued at 500,000 at a 10% interest rate to be amortized over 25 years with monthly payments. If the property generates $70,000 net operating income per year, answer the following. What is the equity dividend rate? 26.38% 15.48% 25.93% 28.56%Q. Emmar Industries borrows $800 million at an interest rate of 7.6%. Emmar will pay tax at an effective rate of 35%. What is the present value of interest tax shields if?(a.) It expects to maintain this debt level into the far future?(b.) It expects to repay the debt at the end of 5 years?(c.) It expects to maintain a constant debt ratio once it borrows the $800 million and rassets =10%?A firm will report annual Net Income of $50 and depreciation expense of $20 forever in the future. With a tax rate of 30%, how much is the present value of all future “tax shields”? Assume r = 4%.
- A firm’s current profits are P550,000. These profits are expected to grow indefinitely at a constant annual rate of 5 percent. If the firm’s opportunity cost of funds is 8 percent, determine the value of the firm: a. The instant before it pays out current profits as dividends: b. The instant after it pays out current profits as dividends.9. If a firm borrows $50 million for one year at an interest rate of 9%, what is the present value of the interest tax shield? Assume a 30% tax rate. a) Compute the PV of interest tax shieldCalculate the cost of capital for a bond that has a $1,000 par value and a contract or coupon interest rate of 11%. Interest payments are $55 and paid semi-annually. The bond has a current market value of $1,000 and will mature in 20 years. The firm's marginal tax rate is 30% a. 11% b. 10.7% c. 7.7% d. 30%
