EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN: 9781337514835
Author: MOYER
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Chapter 12, Problem 2P
Summary Introduction
To determine: The after-tax cost of debt.
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Husky Enterprises recently sold an issue of 15-year maturity bonds. The bonds were sold at a deep discount price of $535 each. After flotation costs, Husky received $515.41 each. The bonds have a $1,000 maturity value and pay $55 interest at the end of each year. Compute the after-tax cost of debt for these bonds if Husky’s marginal tax rate is 40 percent. Use Table II and Table IV to answer the question. Round your answer to one decimal place.
%
XYZ Company has bonds outstanding with 7 years left before maturity. The bonds are currently selling for 800 per 1,000 face value bond. The interest is paid annually at a rate of 12 percent. The firm’s tax rate is 40 percent. Calculate the after-tax
cost of debt.
Perpetualcold Refrigeration Company (PRC) can borrow funds at an interest rate of 11.10% for a period of five years. Its marginal federal-plus-state
tax rate is 35%. PRC'S after-tax cost of debt is 7.22% (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 35%. 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.)
3.06%
2.30%
2.55%
2.04%
Chapter 12 Solutions
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Ch. 12 - Prob. 1QTDCh. 12 - Prob. 2QTDCh. 12 - Prob. 3QTDCh. 12 - Prob. 4QTDCh. 12 - Prob. 5QTDCh. 12 - Prob. 6QTDCh. 12 - Prob. 7QTDCh. 12 - Prob. 8QTDCh. 12 - Prob. 9QTDCh. 12 - Prob. 10QTD
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