3. Calculating Cost of Debt Shanken Corp. issued a 30-year, 5.9 percent semiannual bond three years ago. The bond currently sells for 106 percent of its face value. The company's tax rate is 22 percent. a. What is the pretax cost of debt? b. What is the aftertax cost of debt? c. Which is more relevant, the pretax or the aftertax cost of debt? Why?
Q: You are considering an investment in 30-year bonds issued by Moore Corporation. The bonds have no…
A: Sum of Inflation premium and real interest rate is interest rate. Hence, the inflation premium is…
Q: The Lewin Inc. has issued 60,000 bonds with an 8% coupon rate and a quoted price of 110; the bonds…
A: Given: Particulars Amount Face value(FV) $1,000 Years(NPER) 30 Quoted price 110% Coupon…
Q: 2) To calculate the after-tax cost of debt, multiply the before-tax cost of debt by ------ .…
A: To calculate the after tax cost of debt one needs to multiply the before tax cost of debt by (1-Tax…
Q: What is the cost of debt for Kenny Enterprises if the bond sells at $938.10? % (Round to two decimal…
A: Answer A. $938.10 Given Fv= 1000 Pv=938.10 Coupon rate = 10.2% Pmt= 10.2×1000/2 = 102/2 = 51 N=…
Q: . Bonds issued last year by Gowen Inc. carried a coupon rate of 7%. Bonds issued today by Gowen Inc.…
A: Solution Concept Cost of debt means the cost that the business has to pay on the debt After tax Cost…
Q: Jones Cricket Institute issued a 30 year, 8 percent semi-annual bond 3 year ago. The bond currently…
A: Debt is the kind of loan which is taken by the company from outside to satisfy the capital…
Q: 3. Jones Cricket Institute issued a 30 year, 8 percent semi-annual bond 3 year ago. The bond…
A: Solution- (a) the pre-taxed cost of debt is its yield to maturity (YTM) Assume that Face value or…
Q: Severalyears ago, the ABC Company sold a $1,000 par value bond that now has 15 yearsto maturity and…
A: The after-tax cost of debt is the interest paid on debt less any income tax savings due to…
Q: Safeway Stores issued a 15-year bond 5 years ago; it has $1,000 face value and a 7% coupon rate. If…
A: The cost of debts is the effective interest rate paid by the company to the investors on the amount…
Q: What is your best estimate of the after-tax cost of debt now?
A: Price =93%*1000 =930Par Value =1000
Q: At the present time, Water and Power Company (WPC) has 20-year noncallable bonds with a face value…
A: Yield to maturity (YTM) is also known as yield till maturity, and it refers to the return of the…
Q: Tom Fong Music Inc., has an outstanding bond callable at $1,340. The total value of the bond is $100…
A: Bonds that can be called anytime before maturity are known as callable bonds. Yield to maturity is…
Q: (Cost of debt) Temple-Midland, Inc. is issuing a $1,000 par value bond that pays 7.2 percent annual…
A: In the above question we need to compute the after tax cost of debt. After tax cost of debt = Pre…
Q: Jones Cricket Institute issued a 30 year, 8 percent semi-annual bond 3 year ago. Th currently sells…
A: Solution- (a)Pre taxed cost of debt its yield to maturity YTMAssume that face value or par value of…
Q: Bond interest payments before and after taxes Charter Corp. has issued 1,719 debentures with a total…
A: The interest rate on the debenture is calculated on the face value. The company gets a tax benefit…
Q: Bond interest payments before and after taxes Charter Corp. has issued 2,500 debentures with a total…
A: When a company needs to acquire funds from outside sources it has to seek either the issuance of…
Q: Jiminy's Cricket Farm issued a 25-year, 5 percent semiannual coupon bond 4 years ago. The bond…
A: Bond is the security that provides coupon payment to the bondholder over the maturity period. The…
Q: Squabb Corporation issued a $12,000,000, 5-year bond, with a contract rate of 8%. The market rate of…
A: The bonds are the financial instruments for the business which are used to raise money from the…
Q: Husky Enterprises recently sold an issue of 13-year maturity bonds. The bonds were sold at a deep…
A: The yield to maturity is the rate of return realized when bond is held till the maturity of bond and…
Q: An overview of a firm's cost of debt To calculate the after-tax cost of debt, multiply the…
A: Cost of DEBT It is the effective rate of interest which is paid by the company on the amount of…
Q: Tom Fong Music Inc., has an outstanding bond callable at $1,340. The total value of the bond is $100…
A:
Q: Madoff Corporation raised money through a bond issue with a total principal value of $3,000,000.…
A: A financial instrument with a fixed cost that helps a company to raise funds for business operations…
Q: Freddy’s Farm issued a 25-year, 5 percent semiannual bond three years ago. The bond currently sells…
A: Given:
Q: Simple Corp. has one bond issue oustanding, with a maturity of 10.5 years, a coupon rate of 3.6% and…
A: Here, Maturity = 10.5 years Coupon rate = 3.6% Yield to maturity = 5.4% Average tax rate = 18%…
Q: 5 years ago, Barton Industries issued 25-year noncallable, semiannual bonds with a $1,550 face value…
A: Pre tax cost of debt is yield to maturity of the bond we deduct tax from cost of debt because…
Q: You are considering an investment in 30-year bonds issued by Green Corporation. The bonds have no…
A: Corporate bond-It is a bond issued by a company to fund its business operations, major expansions,…
Q: Jiminiys cricket farm issued a 30 year.8 percent semiannual bond 3 years ago.the bond currently…
A: Pretax cost of debt is YTM of the bond
Q: Flotation costs and the cost of debt In March of 2020 PepsiCo, Inc. (PEP) sold $750 million worth of…
A: Coupon Rate = 4.75% Market price = $992.76 Face Value = $1,000 Flotation Cost = $18.14 Corporate…
Q: Shanken NV issued a 20-year, 12 percent semiannual bond 5 years ago. The bond currently sells for…
A: The after-tax cost of debt is its yield to maturity (YTM) adjusted for taxes. The YTM is the…
Q: A Cricket Institute issued a 30 year, 8 percent semi-annual bond 3 year ago. The bond currently…
A: In the given question we need to calculate the pre-taxed cost of debt , after tax cost of debt,…
Q: Jiminy's Cricket Farm Issued a bond with 30 years to maturity and a semiannual coupon rate of 6…
A: The Pre-tax cost of debt is the cost that is considered before taking tax into consideration. It is…
Q: Jones Cricket Institute issued a 30 year, 8 percent semi-annual bond 3 year ago. The bond currently…
A: Coupon rate on bond = 8% Semi-annual coupon amount = 8%/2 = 4% Let Face Value = 1000 Selling Price…
Q: 5 years ago, Barton Industries issued 25-year noncallable, semiannual bonds with a $1,000 face value…
A: Information Provided: Term = 20 years remaining Face value = $1000 Coupon rate = 8% semi-annually…
Q: Using the cost-of-debt approximation formula, determine the pre-tax cost for a bond that sells at $…
A: a) The question gives the following information:
Q: 3. Jones Cricket Institute issued a 30 year, 8 percent semi-annual bond 3 year ago. The bond…
A: Since you have posted a question with multiple sub-parts, we will solve the first three subparts for…
Q: Ying Import has several bond issues outstanding, each making semiannual interest payments. The bonds…
A: Here, To Find: After-tax cost of the company's debt =?
Q: To calculate the after-tax cost of debt, multiply the before-tax cost of debt by Three Waters…
A: Cost of debt(Kd) is the minimum rate of return on the debt funds raised by the company. It should be…
Q: Jones Cricket Institute issued a 30 year, 8 percent semi-annual bond 3 year ago. The bond…
A: Note: As per the policy, we are supposed to solve the first three subparts only. Kindly repost the…
Q: The long-term debt section of the balance sheet of Queen's Corporation appears as follows: 9%%…
A: Calculation of interest on debentures and Bonds is as follows: Resultant table:
Q: Jiminy's Cricket Farm Issued a bond with 25 years to maturity and a semlannual coupon rate of 4…
A: The company needs funds in order to carrying the long term as well as short term expenses. Those…
Q: (Cost of debt) Belton Distribution Company is issuing a $1,000 par value bond that pays 7.0 percent…
A: Par value = $ 1000 Coupon rate = 7% Semi annual coupon amount = 1000*0.07/2 = $ 35 Years to maturity…
Q: Charter Corp. has issued 2,500 debentures with a total principal value of $1,500,000. The bonds have…
A: Debentures are a kind of long-term debt financing instrument that a company or government of a…
Q: Jones Cricket Institute issued a 30 year, 8 percent semi-annual bond 3 year ago. The bond currently…
A: Using excel rate function
Q: Bond interest payments before and after taxes Charter Corp. has issued 2,985 debentures with a total…
A: Part (a): Calculation of dollar amount of interest per bond: Answer: Dollar amount of interest per…
Q: Tel Corporation issued bonds at 2,500 par value. Given the interest rate of 8% in the market, how…
A: As you have asked multiple questions, we will solve the first question as per policy. Request you to…
Q: Bond interest payments before and after taxes Charter Corp. has issued 2,798 debentures with a…
A: Calculation of Amount of Interest per bond, Total Interest Expense and After-tax Interest Cost:The…
Q: a The dollar amount of interest per bond an investor can expect to receive each year from Charter is…
A: Debentures are a long term debt security used largely by big corporates to issue debt funds offering…
Q: To calculate the after-tax cost of debt, multiply the before-tax cost of debt by ______. 2.…
A: Cost of debt is nothing but yield to maturity of bond and cost of debt has advantage of taxes due to…
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
- 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?
- 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?On 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 588,000Jones 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 %
- Sunland 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%.)Pharoah 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 %Marysa 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 debt
- Jiminy's Cricket Farm issued a 30-year, 7 percent semiannual bond 4 years ago. The bond currently sells for 95 percent of its face value. The company's tax rate is 25 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 debta. 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.)Freddy’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?