CORPORATE FINANCE--CONNECT ACCESS CARD
12th Edition
ISBN: 9781264807475
Author: Ross
Publisher: MCG CUSTOM
expand_more
expand_more
format_list_bulleted
Question
Chapter 13, Problem 3QAP
a
Summary Introduction
Adequate information:
Face value = $1,000
Price = $1,060
Term duration = 30 years
Number of compounding periods in a year = 2
Coupon rate = 5.9%
To compute: Pretax cost of debt
Introduction: Pretax cost of debt refers to the interest payments made without considering tax obligations.
b
Summary Introduction
Adequate information:
Tax rate = 22%
To compute: After-tax cost of debt
Introduction: After-tax cost of debt refers to the interest payments made after considering tax obligations.
c
Summary Introduction
Adequate information:
Tax rate = 22%
To compute: To identify the more relevant pretax or after-tax cost of debt
Introduction: After-tax cost of debt refers to the interest payments made after considering tax obligations.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
3. Jones Cricket Institute issued a 30 year, 8 percent semi-annual bond 3 year ago. The bond
currently sells for 93 percent of its face value. The Company's tax rate is 35%.
a. What is the pre-taxed cost of debt?
b. What is the after tax cost of debt?
c. Which is more relevant, the pre-tax or the after- tax cost of debt? Why?
In question 3 above, suppose the book value of the debt issues is $60 million. In addition, the
company has a second debt issue on the market, a zero coupon bond with 10 years to mature. The
book value of this issue is $35 million and the bond sell for 57 percent of par.
a. What is the company's total book value of debt?
b. The total market value?
c. What is your best estimate of the after-tax cost of debt now?|
Jones Cricket Institute issued a 30 year, 8 percent semi-annual bond 3 year ago. The bond
currently sells for 93 percent of its face value. The Company's tax rate is 35%.
a. What is the pre-taxed cost of debt?
b. What is the after tax cost of debt?
c. Which is more relevant, the pre-tax or the after- tax cost of debt? Why?
Jones Cricket Institute issued a 30-year, 8 percent semi-annual bond 3 year ago. The bond currently sells for 93 percent of its face value. The Company’s tax rate is 35%.
a. What is the pre-taxed cost of debt?
b. What is the after-tax cost of debt?
c. Which is more relevant, the pre-tax or the after- tax cost of debt? Why?
In the question above, suppose the book value of the debt issues is $60 million. In addition, the company has a second debt issue on the market, a zero coupon bond with 10 years to mature. The book value of this issue is $35 million and the bond sell for 57 percent of par.
a. What is the company’s total book value of debt?
b. The total market value?
c. What is your best estimate of the after-tax cost of debt now?
Chapter 13 Solutions
CORPORATE FINANCE--CONNECT ACCESS CARD
Ch. 13 - Project Risk If you can borrow all the money you...Ch. 13 - WACC and Taxes Why do we use an aftertax figure...Ch. 13 - SML Cost or Equity Estimation If you use the stock...Ch. 13 - SML Cost or Equity Estimation What are the...Ch. 13 - Prob. 5CQCh. 13 - Cost of Capital Suppose Tom OBedlam, president of...Ch. 13 - Company Risk versus Project Risk Both Dow Chemical...Ch. 13 - Prob. 8CQCh. 13 - Leverage Consider a levered firms projects that...Ch. 13 - Beta What factors determine the beta of a stock?...
Ch. 13 - Prob. 1QAPCh. 13 - Prob. 2QAPCh. 13 - Prob. 3QAPCh. 13 - Prob. 4QAPCh. 13 - Prob. 5QAPCh. 13 - Prob. 6QAPCh. 13 - Prob. 7QAPCh. 13 - Prob. 8QAPCh. 13 - Prob. 9QAPCh. 13 - Prob. 10QAPCh. 13 - Prob. 11QAPCh. 13 - Prob. 12QAPCh. 13 - Prob. 13QAPCh. 13 - Prob. 14QAPCh. 13 - Prob. 15QAPCh. 13 - Prob. 16QAPCh. 13 - Prob. 17QAPCh. 13 - Prob. 18QAPCh. 13 - Prob. 19QAPCh. 13 - Prob. 20QAPCh. 13 - Prob. 21QAPCh. 13 - Prob. 22QAPCh. 13 - Prob. 23QAPCh. 13 - Prob. 24QAPCh. 13 - Prob. 1MCCh. 13 - Prob. 2MCCh. 13 - Go to www.reuters.com and find the list of...Ch. 13 - You now need to calculate the cost of debt for...Ch. 13 - You now have all the necessary information to...Ch. 13 - You used Tesla as a representative company to...
Knowledge Booster
Similar questions
- Jones Cricket Institute issued a 30 year, 8 percent semiannual bond 3 years ago. The bond currently sells for 93 percent of its face value. The Company’s tax rate is 35%.a. What is the pre-taxed cost of debt?b. What is the after-tax cost of debt?c. Which is more relevant, the pre-tax or the after-tax cost of debt? Why? In the question above, suppose the book value of the debt issues is $60 million. In addition, the company has a second debt issue on the market, a zero-coupon bond with 10 years to mature. The book value of this issue is $35 million and the bond sells for 57 percent of par. a. What is the company’s total book value of debt?b. The total market value?c. What is your best estimate of the after-tax cost of debt now?arrow_forwardOn the first day of its fiscal year, Jacinto Company issued $14,700,000 of five-year, 8% bonds to finance its operations of producing and selling home improvement products. Interest is payable semiannually. The bonds were issued at a market (effective) interest rate of 9%, resulting in Jacinto Company receiving cash of $14,118,450. a. Journalize the entries to record the following: 1. Issuance of the bonds. 2. First semiannual interest payment. The bond discount amortization is combined with the semiannual interest payment. 3. Second semiannual interest payment. The bond discount amortization is combined with the semiannual interest payment. If an amount box does not require an entry, leave it blank. Round your answers to the nearest dollar. Cash 1. 14,118,450 Discount on Bonds Payable 581,550 Bonds Payable 14,700,000 2. Interest Expense 529,845 Discount on Bonds Payable v 581,155 Cash V 588,000 Interest Expense 3. 529,845 Discount on Bonds Payable 58,155 Cash 588,000arrow_forwardJones Cricket Institute issued a 30 year, 8 percent semi-annual bond 3 year ago. The bond currently sells for 93 percent of its face value. The Company’s tax rate is 35%. 1. What is the pre-taxed cost of debt? 2. What is the after tax cost of debt? 3. Which is more relevant, the pre-tax or the after- tax cost of debt? Why?arrow_forward
- Jones Cricket Institute issued a 30 year, 8 percent semi-annual bond 3 year ago. The bond currently sells for 93 percent of its face value. The Company’s tax rate is 35%. a) What is the pre-taxed cost of debt? Answer % b) What is the after tax cost of debt? Answer % c) Which is more relevant, the pre-tax or the after- tax cost of debt? Why? Answer In the question above, suppose the book value of the debt issues is $60 million. In addition, the company has a second debt issue on the market, a zero coupon bond with 10 years to mature. The book value of this issue is $35 million and the bond sell for 57 percent of par. What is the company’s total book value of debt? $ Answer The total market value? $ Answer What is your best estimate of the after-tax cost of debt now? Answer %arrow_forwardPharoah Ltd. has issued bonds that never require the principal amount to be repaid to investors. Correspondingly, Pharoah must make interest payments into the infinite future. If the bondholders receive annual payments of $82 and the current price of the bonds is $820.00. What is the pre-tax cost of this debt? (Round answer to 2 decimal places, e.g. 15.25%.) Pre-tax cost of debt Type your answer here %arrow_forwardSunland Ltd. has issued bonds that never require the principal amount to be repaid to investors. Correspondingly, Sunland must make interest payments into the infinite future. If the bondholders receive annual payments of $94 and the current price of the bonds is $1,000.00. Your Answer Correct Answer What is the pre-tax cost of this debt? (Round answer to 2 decimal places, e.g. 15.25%.) Pre-tax cost of debt eTextbook and Media Your Answer Correct Answer do % What is the after-tax cost of this debt for Sunland if the firm is in the 40 percent marginal tax rate? (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to 2 decimal places, e.g. 15.25%.)arrow_forward
- Jiminy's Cricket Farm issued a 20-year, 6 percent semiannual bond 4 years ago. The bond currently sells for 91 percent of its face value. The company's tax rate is 23 percent. a. What is the pretax cost of debt? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b. What is the aftertax cost of debt? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. a. Pretax cost of debt b. Aftertax cost of debt % % c. Which is more relevant, the pretax or the aftertax cost of debt? O Aftertax cost of debt O Pretax cost of debtarrow_forwardFreddy’s Farm issued a 25-year, 5 percent semiannual bond three years ago. The bond currently sells for 97 percent of its face value. The company’s tax rate is 21 percent. What is the pretax cost of debt? What is the after-tax cost of debt? Which is more relevant, the pretax or the after-tax cost of debt? Why?arrow_forwardMarysa Corp. issued a 30-year, 5 percent semiannual bond 4 years ago. The bond currently sells for 94 percent of its face value. The company’s tax rate is 25 percent. a. What is the pretax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the aftertax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. Which is more relevant, the pretax or the aftertax cost of debt? multiple choice Aftertax cost of debt Pretax cost of debtarrow_forward
- Cost of debt with fees. Kenny Enterprises will issue a bond with a par value of $1,000, a maturity of twenty years, and a coupon rate of 11.2% with semiannual payments, and will use an investment bank that charges $30 per bond for its services. What is the cost of debt for Kenny Enterprises at the following market prices? a. $979.18 b. $1,009.76 c. $1,111.03 d. $1,147.97 a. What is the cost of debt for Kenny Enterprises at a market price of $979.18? ☐ % (Round to two decimal places.)arrow_forwarda. Determine the annual before-tax interest cost for each company in dollars. b. Determine the annual after-tax interest cost for each company in dollars. (Round your answers to the nearest dollar amount.) c. Determine the annual after-tax interest cost for each company as a percentage of the face value of the bonds. (Round your answers to 1 decimal place.)arrow_forwardDunder-Mifflin, Inc. hires an investment banker for the sale of the 600,000 bonds from Problem 4. The investment banker charges a 2% fee on each bond sold. What is the cost of debt to DMI if the following are the proceeds before the banker's fees are deducted? (Use information from the previous problem) $45,000,000? 16.38% 16.86% 15.06% 17.17% 14.12%arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
- Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage LearningCorporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan ProfessorPublisher:McGraw-Hill Education
Essentials Of Investments
Finance
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:9780134897264
Author:KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...
Finance
ISBN:9780077861759
Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:McGraw-Hill Education