2Russell Container Corporation has a $1,000 par value bond outstanding with 30 years to maturity. The bond carries an annual interestpayment of $105 and is currently selling for $880 per bond. Russell Corporation is in a 25 percent tax bracket. The firm wishes to knowwhat the aftertax cost of a new bond issue is likely to be. The yield to maturity on the new issue will be the same as the yield tomaturity on the old issue because the risk and maturity date will be similar.a. Compute the yield to maturity on the old issue and use this as the yield for the new issue.Note: Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.PrintYield on new issue11.99%b. Make the appropriate tax adjustment to determine the aftertax cost of debt.Note: Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.Aftertax cost of debt8.39 %

The problem requires the determination of the YTM. Yield to maturity (YTM) is considered a long-term…

Answered: 2 Russell Container Corporation has a…

College Accounting, Chapters 1-27

23rd Edition

ISBN:9781337794756

Author:HEINTZ, James A.

Publisher:HEINTZ, James A.

Chapter22: Corporations: Bonds

Section: Chapter Questions

Problem 1CE

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Russell Container Corporation has a $1,000 par value bond outstanding with 30 years to maturity. The bond carries an annual interest payment of $105 and is currently selling for $880 per bond. Russell Corp. is in a 25 percent tax bracket. The firm wishes to know what the aftertax cost of a new bond issue is likely to be. The yield to maturity on the new issue will be the same as the yield to maturity on the old issue because the risk and maturity date will be similar. a. Compute the yield to maturity on the old issue and use this as the yield for the new issue. b. Make the appropriate tax adjustment to determine the aftertax cost of debt.
Octopus Transit has a $1,000 par value bond outstanding with 10 years to maturity. The bond carries an annual interest payment of $104, payable semiannually, and is currently selling for $1,105. Octopus is in a 35 percent tax bracket. The firm wishes to know what the aftertax cost of a new bond issue is likely to be. The yield to maturity on the new issue will be the same as the yield to maturity on the old issue because the risk and maturity date will be similar. a. Compute the yield to maturity on the old issue and use this as the yield for the new issue. (Do not round intermediate calculations. Round the final answer to 2 decimal places.) Yield on new issue % b. Make the appropriate tax adjustment to determine the aftertax cost of debt. (Do not round intermediate calculations. Round the final answer to 3 decimal places.) Cost of debt %
Airborne Airlines Inc. has a $1,000 par value bond outstanding with 20 years to maturity. The bond carries an annual interest payment of $100 and is currently selling for $900. Airborne is in a 25 percent tax bracket. The firm wishes to know what the aftertax cost of a new bond issue is likely to be. The yield to maturity on the new issue will be the same as the yield to maturity on the old issue because the risk and maturity date will be similar. a. Compute the yield to maturity on the old issue and use this as the yield for the new issue. Yield on new issue :
Russell Container Corporation has a RM1,000 par value bonds outstanding with 20 years to maturity. The bond carries an annual interest payment of RM95 and is currently selling for RM920 per bond. Russell Corp. is in a 25 percent tax bracket. The firm wishes to know the after-tax cost of a new bond issue is likely to be. The yield to maturity on the new issue will be the same as the yield to maturity on the old issue because the risk and maturity date will be similar. i. Compute the yield to maturity on the old issue and use this as the yield for the new issue. ii. Make the appropriate tax adjustment to determine the after-tax cost of debt.
KIC Inc. plans to issue $7.2 million of bonds with a coupon rate of 16 percent paid semiannually and 36 years to maturity. The current one-year market interest rate on these bonds is 15 percent. In one year, the interest rate on the bonds will be either 18 percent or 9 percent with equal probability. Assume investors are risk neutral. a. If the bonds are non-callable, what is the price of the bonds today? (Do not round Intermediate calculations. Enter the answer in dollars. Round the final answer to 2 decimal places. Omit $ sign in your response.) Price of the bonds $ $3,799,246.63 b. If the bonds are callable one year from today at $1,575, will their price be greater or less than the price you computed in part (a)? Greater than Less than c. If the bonds are callable one year from today at $1,575, what is the current price of the bond? (Do not round Intermediate calculations. Enter the answer in dollars. Round the final answer to 2 decimal places. Omit $ sign in your response.) Current…
McCue Inc.’s bonds currently sell for $1,070. They pay a $120 annual coupon, have a 11-year maturity and a $1,000 par value, but they can be called in 4 years at $1,080. Assume that no costs other than the call premium would be incurred to call and refund the bonds, and also assume that the yield curve is horizontal, with rates expected to remain at current levels into the future. What is the difference between this bond’s YTM and its YTC? (Subtract the YTC from the YTM.)
McCue Inc.'s bonds currently sell for $1,175. They pay a $90 annual coupon, have a 25-year maturity, and a $1,000 par value, but they can be called in 5 years at $1,050. Assume that no costs other than the call premium would be incurred to call and refund the bonds, and also assume that the yield curve is horizontal, with rates expected to remain at current levels on into the future. What is the difference between this bond's YTM and its YTC? (Subtract the YTC from the YTM; it is possible to get a negative answer.) Select one: a. 1.47% b. 1.68% c. 1.88% d. 1.26% e. 1.74%
Taussig Corp.'s bonds currently sell for P1,150. They have a 6.75% annual coupon rate and a 15-year maturity, but they can be called in 6 years at P1,067.50. Assume that no costs other than the call premium would be incurred to call and refund the bonds, and also assume that the yield curve is horizontal, with rates expected to remain at current levels on into the future. Under these conditions, what rate of return should an investor expect to earn if he or she purchases these bonds, the YTC or the YTM?
McCue Inc.'s bonds currently sell for $1,250. They pay a $90 annual coupon, have a 25-year maturity, and a $1,000 par value, but they can be called in 5 years at $1,050. Assume that no costs other than the call premium would be incurred to call and refund the bonds, and assume that the yield curve is horizontal, with rates expected to remain at current levels on into the future. What is the difference between this bond's YTM and its YTC? Please explain the difference between YTM and YTC.
Kholdy Inc's bonds currently sell for $1,275. They pay a $120 annual coupon and have a 20- year maturity and a par value of $1000, but they can be called in 5 years at $1,120. Assume that no costs other than the call premium would be incurred to call and refund the bonds, and also assume that the yield curve is horizontal, with rates expected to remain at current levels on into the future. What is the bond's YTM (Yield to Maturity) and YTC (Yield To Call)?
Airborne Airlines Inc. has a $1,000 par value bond outstanding with 20 years to maturity. The bond carries an annual interest payment of $100 and is currently selling for $900. Airborne is in a 25 percent tax bracket. The firm wishes to know what the after-tax cost of a new bond issue is likely to be. The yield to maturity on the new issue will be the same as the yield to maturity on the old issue because the risk and maturity date will be similar. a. Compute the yield to maturity on the old issue and use this as the yield for the new issue. b. Make the appropriate tax adjustment to determine the aftertax cost of debt.
Kindly answer using the formula: Monster Limos plans to issue new bonds that have the same yield as its existing bonds, which have a coupon rate of interest equal to 4 percent (paid semiannually), eight years remaining until maturity, and a $1,000 maturity value. The existing bonds are currently selling for $886 each. What should be the coupon rate for the new bonds? If the firm’s marginal tax rate is 40 percent, what will be the after-tax cost of debt associated with the new debt (bonds)?

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