Foundations Of Finance
10th Edition
ISBN: 9780134897264
Author: KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher: Pearson,
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 9, Problem 12SP
a)
Summary Introduction
To determine: The market
b)
Summary Introduction
To determine: The net price when the floatation cost is market price’s 10.5%.
c)
Summary Introduction
To determine: The number of bonds company have to issue to receive required funds.
d)
Summary Introduction
To determine: The company’s after tax cost of debt.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
(Cost of debt)
Sincere Stationery Corporation needs to raise $500,000 to improve its manufacturing plant. It has decided to issue a $1,000 par value bond with an annual coupon rate of 10 percent with interest paid semiannually and a 10-year maturity. Investors require a rate of return of 9 percent.
a. Compute the market value of the bonds.
b. How many bonds will the firm have to issue to receive the needed funds?
c. What is the firm's after-tax cost of debt if the firm's tax rate is 34 percent?
(Cost of debt) Sincere Stationery Corporation needs to raise $500,000 to improve its manufacturing plant. It has decided to issue a $1,000 par value bond with
an annual coupon rate of 14 percent and a maturity of 10 years. The investors require a rate of return of 9 percent.
a. Compute the market value of the bonds
b. What will the net price be if flotation costs are 10.5 percent of the market price?
c. How many bonds will the firm have to issue to receive the needed funds?
d. What is the firm's after-tax cost of debt if its average tax rate is 25 percent and its marginal tax rate is 21 percent?
e. Rework the problem as follows: Assume a coupon rate of 8 percent.
f. What effect does changing the coupon rate have on the firm's after-tax cost of capital? Why is there a change?
GUD
a. If the bond's annual coupon rate is 14%, what is the market value of the bond?
(Round to the nearest cent.)
b. What will the net price be if flotation costs are 10.5 percent of the market price?
(Round to…
(Cost of debt) Gillian Stationery Corporation needs to raise $610,000 to improve its manufacturing plant. It has decided to issue a $1,000 par value bond with an annual coupon rate of 7.9
percent with interest paid semiannually and a 15-year maturity. Investors require a rate of return of 10.7 percent.
a. Compute the market value of the bonds.
b. How many bonds will the firm have to issue to receive the needed funds?
c. What is the firm's after-tax cost of debt if the firm's tax rate is 34 percent?
a. The market value of the bonds is $ (Round to the nearest cent.)
b. The number of bonds that the company needs to sell isbonds. (Round up to the nearest integer.)
c. The firm's after-tax cost of debt is. (Round to two decimal places)
Chapter 9 Solutions
Foundations Of Finance
Ch. 9 - Define the term cost of capital.Ch. 9 - Prob. 2RQCh. 9 - Why do firms calculate their weighted average cost...Ch. 9 - Prob. 4RQCh. 9 - Prob. 5RQCh. 9 - Prob. 6RQCh. 9 - Prob. 7RQCh. 9 - Prob. 1SPCh. 9 - Prob. 2SPCh. 9 - (Cost of equity) In the spring of 2018, the Brille...
Ch. 9 - Prob. 4SPCh. 9 - Prob. 5SPCh. 9 - Prob. 6SPCh. 9 - Prob. 7SPCh. 9 - (Cost of internal equity) Pathos Co.s common stock...Ch. 9 - (Cost of equity) The common stock for the Bestsold...Ch. 9 - Prob. 10SPCh. 9 - Prob. 11SPCh. 9 - Prob. 12SPCh. 9 - a. Rework Problem 9-12 as follows: Assume an 8...Ch. 9 - (Capital structure weights) Wingate Metal...Ch. 9 - (Weighted average cost of capital) The capital...Ch. 9 - Prob. 17SPCh. 9 - Prob. 18SPCh. 9 - Prob. 19SPCh. 9 - (Divisional costs of capital and investment...Ch. 9 - Prob. 21SPCh. 9 - Prob. 2.1MCCh. 9 - If you were to evaluate divisional costs of...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Suppose the Schoof Company has this book value balance sheet: The notes payable are to banks, and the interest rate on this debt is 10%, the same as the rate on new bank loans. These bank loans are not used for seasonal financing but instead are part of the companys permanent capital structure. The long-term debt consists of 30,000 bonds, each with a par value of 1,000, an annual coupon interest rate of 6%, and a 20-year maturity. The going rate of interest on new long-term debt, rd, is 10%, and this is the present yield to maturity on the bonds. The common stock sells at a price of 60 per share. Calculate the firms market value capital structure.arrow_forward(Cost of debt) Sincere Stationery Corporation needs to raise $508,000 to improve its manufacturing plant. It has decided to issue a $1,000 par value bond with an annual coupon rate of 10.2 percent with interest paid semiannually and a 10-year maturity. Investors require a rate of return of 7.1 percent. a. Compute the market value of the bonds. b. How many bonds will the firm have to issue to receive the needed funds? c. What is the firm's after-tax cost of debt if the firm's tax rate is 34 percent?arrow_forward(Cost of debt) Sincere Stationery Corporation needs to raise $543,000 to improve its manufacturing plant. It has decided to issue a $1,000 par value bond with an annual coupon rate of 10.9 percent with interest paid semiannually and a 10-year maturity. Investors require a rate of return of 7.7 percent. a. Compute the market value of the bonds. b. How many bonds will the firm have to issue to receive the needed funds? c. What is the firm's after-tax cost of debt if the firm's tax rate is 34 percent? a. The market value of the bonds is $ (Round to the nearest cent.)arrow_forward
- financearrow_forwardBuiltrite needs to raise $2,000,000 for a plant improvement. It plans to sell $1000 par value bonds with a 10% coupon rate arde a 15 year maturity. Investors require a 9% rate of return. Calculate the market value of the bonds, what is the net price of the bonds if flotation costs are 5% of the market price?arrow_forwardWhat is the current required rate of return on the equity of FINA corp? FINA issued 30 year bond 5 years ago. The current market value of debt is 50 million. The face value of the bond is 44.5 million. The coupon rate is 6%. The bond pays coupon semiannually. What is the current cost of debt?arrow_forward
- Setrakian Industries needs to raise $99.4 million to fund a new project. The company will sell bonds that have a coupon rate of 6.02 percent paid semiannually and that mature in 25 years. The bonds will be sold at an initial YTM of 6.82 percent and have a par value of $2,000. How many bonds must be sold to raise the necessary funds? O 99,400 bonds O 181,154 bonds O 54,939 bonds 68,674 bonds A Moving to another question will save this response. Question 19 of 30arrow_forwardPlease solve it in excel with Formulas explanationarrow_forwardStuck on this question. Long-term Borrowing Company (LBC) is raising new capital by selling bonds. Its investment bankers have estimated that if the company sets the coupon rate for the new bonds at 8% paid semiannually, it can sell them in the market for $1,102 per bond. The new bonds will have 15 years to maturity. The bankers have estimated that the cost of selling the new bonds will be $25 per bond. What is the company’s after-tax cost of new debt for this new financing if its tax rate is 30 percent? I see in another solution that the before tax cost of debt is 7.1546%. I don't understand the calculation to get that percentage.arrow_forward
- Nonearrow_forward5. HSD Corporation needs to raise funds to finance a plant expansion and it has decided to issue 25-year zero coupon bonds to raise the money. The required return on the bonds will be 8%. Assume FV is $1000. a. What will these bonds sell for at issuance? b. How many of these bonds would the company need to issue to raise 15M? C. If the bond includes a 10% coupon, what will the bonds sell for at issuance?arrow_forwardPlease help mearrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
- College Accounting, Chapters 1-27AccountingISBN:9781337794756Author:HEINTZ, James A.Publisher:Cengage Learning,
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
College Accounting, Chapters 1-27
Accounting
ISBN:9781337794756
Author:HEINTZ, James A.
Publisher:Cengage Learning,
Bond Valuation - A Quick Review; Author: Pat Obi;https://www.youtube.com/watch?v=xDWTPmqcWW4;License: Standard Youtube License