A company that makes several different types of skateboards, Jennings Outdoors, incurred interest expenses of $1,200,000 per year from various types of debt financing. The company received $19,000,000 in year 0 through the sale of discounted bonds with a face value of $20,000,000. The company repaid the principal of the loans in year 15 in a lump sum payment of $20,000,000. If the company’s effective tax rate is 29%, what was Jennings’ cost of debt capital (a) before taxes, and (b) after taxes? (c) Write a single-cell RATE function to display the rate for each debt capital cost requested.
A company that makes several different types of skateboards, Jennings Outdoors, incurred interest expenses of $1,200,000 per year from various types of debt financing. The company received $19,000,000 in year 0 through the sale of discounted bonds with a face value of $20,000,000. The company repaid the principal of the loans in year 15 in a lump sum payment of $20,000,000. If the company’s effective tax rate is 29%, what was Jennings’ cost of debt capital (a) before taxes, and (b) after taxes? (c) Write a single-cell RATE function to display the rate for each debt capital cost requested.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
A company that makes several different types of
skateboards, Jennings Outdoors, incurred interest
expenses of $1,200,000 per year from various types
of debt financing. The company received
$19,000,000 in year 0 through the sale of discounted
bonds with a face value of $20,000,000. The company
repaid the principal of the loans in year 15 in a
lump sum payment of $20,000,000. If the company’s
effective tax rate is 29%, what was Jennings’
cost of debt capital (a) before taxes, and (b) after
taxes? (c) Write a single-cell RATE function to display
the rate for each debt capital cost requested.
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