A company issued a 25-year, 5 percent semiannual coupon bond 6 years ago. The bondcurrently sells for 106 percent of its face value. The company's tax rate is 25 percent.a. What is the company's pretax cost of debt? (Do not round intermediate calculationsand enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)b. What is the company's aftertax cost of debt? (Do not round intermediate calculationsand enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)Answer is complete but not entirely correct.a.Pretax cost of debt4.04%b.Aftertax cost of debt3.03%

Key Information:1. Bond Characteristics:Coupon Rate: 5% annual ratePayment Frequency:…

Answered: A company issued a 25-year, 5 percent…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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A company issued a 25-year, 5 percent semiannual coupon bond 6 years ago. The bond currently sells for 106 percent of its face value. The company's tax rate is 25 percent. a. What is the company's 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 company's 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.) Answer is complete but not entirely correct. a. Pretax cost of debt 4.21% b. Aftertax cost of debt 3.16%
Jiminy's Cricket Farm Issued a bond with 30 years to maturity and a semiannual coupon rate of 6 percent 4 years ago. The bond currently sells for 105 percent of its face value. The company's tax rate is 23 percent. a. What is the pretax cost of debt? (Do not round Intermedlate 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 Intermedlate 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 debt Prev 19 of 30 T:.. 口 Next > 8A1B4474-4751...jpeg 8A1B4474-4751.jpeg EA9F9D41-D35...jpeg
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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%.i) 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? ii) In 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?
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