Foundations Of Finance
Foundations Of Finance
10th Edition
ISBN: 9780134897264
Author: KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher: Pearson,
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Chapter 9, Problem 4SP
Summary Introduction

To determine: The after tax cost of debt on the bond.

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(Cost of debt) Carraway Seed Company is issuing a $1,000 par value bond that pays 8 percent annual interest and matures in 9 years. Investors are willing to pay $935 for the bond. Flotation costs will be 9 percent of market value. The company is in a 30 percent tax bracket. What will be the firm's after-tax cost of debt on the bond? The firm's after-tax cost of debt on the bond will be %. (Round to two decimal places.)
(Cost of debt) Carraway Seed Company is issuing a $1,000 par value bond that pays 11 percent annual interest and matures in 6 years. Investors are willing to pay $955 for the bond. Flotation costs will be 11 percent of market value. The company is in a 38 percent tax bracket. What will be the firm's after-tax cost of debt on the bond? The firm's after-tax cost of debt on the bond will be ☐ %. (Round to two decimal places.)
LLC International is issuing a $2,000 par value bond that pays 8 percent annual interest and matures in 10 years. Investors are willing to pay $1,800 for the bond. Floatation costs will be 4 percent of market value. The Company is in a 20 percent tax bracket. What will be the firm’s after-tax cost of debt on the bond??
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