Airborne Airlines Inc. has a $1,000 par value bond outstanding with 30 years to maturity. The bond carries an annual interest payment of $110 and is currently selling for $850. 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. (Do not round intermediate calculations. Input your answer as a percent rounded 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. Input your answer as a percent rounded to 2 decimal places.) Aftertax cost of debt
Airborne Airlines Inc. has a $1,000 par value bond outstanding with 30 years to maturity. The bond carries an annual interest payment of $110 and is currently selling for $850. 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. (Do not round intermediate calculations. Input your answer as a percent rounded 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. Input your answer as a percent rounded to 2 decimal places.) Aftertax cost of debt
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
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Debenture Valuation
A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as the ‘coupon rate.’ Debentures are documented in an indenture, clearly specifying the type of debenture, the rate and method of interest computation, and maturity date.
Note Valuation
It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:
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3.
Airborne Airlines Inc. has a $1,000 par value bond outstanding with 30 years to maturity. The bond carries an annual interest payment
of $110 and is currently selling for $850. 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.
7.69
polnts
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.
Input your answer as a percent rounded to 2 decimal places.)
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Yield on new issue
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b. Make the appropriate tax adjustment to determine the aftertax cost of debt. (Do not round intermediate calculations. Input your
answer as a percent rounded to 2 decimal places.)
Aftertax cost of debt
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