ABC Co. can issue P1,000 par value bond that pays P100 per year in interest at a price of P980. The bond will have a 5-year life. The firm is in a 35% tax bracket. What is the after-tax cost of debt? A 5.87% B. 6.8% C. 9.03% D. 9.14%

ABC Co. can issue P1,000 par value bond that pays P100 per year in interest at a price of P980. The bond will have a 5-year life. The firm is in a 35% tax bracket. What is the after-tax cost of debt? A 5.87% B. 6.8% C. 9.03% D. 9.14%

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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Concept explainers

Consolidation

Consolidation in general examination implies an asset oscillating between well-defined methods of trading status. Consolidation is commonly known as market indecisiveness, which completes when the asset's values move forward or backward the trading structure.

Question

ABC Co. can issue P1,000 par value bond that pays P100 per year in interest at a price of P980.
The bond will have a 5-year life. The firm is in a 35% tax bracket. What is the after-tax cost of debt?
A. 5.87%
B. 6.8%
C. 9.03%
D. 9.14%

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