Attempts܀2. An overview of a firm's cost of debtThe before-tax cost of debt▸Blue Hamster Manufacturing (BHM) can borrow funds at an interest rate of 7.30% for a period of five years. Its marginal federal-plus-state tax rate is35%. BHM's after-tax cost of debt is(rounded to two decimal places).Keep the Highest/3O 6.99%O 5.59%At the present time, Blue Hamster Manufacturing (BHM) has a series of twenty-year noncallable bonds with a face value of $1,000 that areoutstanding. These bonds have a current market price of $1,181.96 per bond, carry a coupon rate of 13%, and distribute annual coupon payments.The company incurs a federal-plus-state tax rate of 35%. If BHM wants to issue new debt, what would be a reasonable estimate for its after-tax costof debt (rounded to two decimal places)?O 6.29%O 8.04%is the interest rate that a firm pays on any new debt financing.

The cost of debt is the effective interest rate that a company pays on its debt, such as bonds or…

Answered: Attempts ❖ 2. An overview of a firm's…

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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PROBLEM 1 On December 31, 2023, JFG Company, a financing institution, lent P4,000,000 to MFG Company due 3 years after. The loan is supported by an 8% note receivable. Transaction costs incurred to originate the loan amounted to P248,000. P374,000 was chargeable to MFG as origination fees. Interest on the loan is collectible at the end of each year. The yield rate on the loan after considering the direct origination fees and origination costs incurred is 9.25%. JFG was able to collect interest as it became due at the end of 2024. During 2025, however, due to MFG Company's business deterioration and due to political instability and faltering global economy, the company was not able to collect amounts due at the end of 2025. After reviewing all available evidence at December 31, 2025, JFG determined that it was probable that MFG would pay back only P3,400,000 collectible as follows: December 31, 2027 December 31, 2028 December 31, 2029 December 31, 2030 P1,400,000 1,000,000 600,000…
Calculate the annual change in interest expense that would occur for a drop in interest rates from 6% to 4% for a borrower with $5,000,000 in variable-rate debt. a. -$100,000 Ob. $200,000 O c. $300,000 d. $100,000
Cost of Bank Loans Gifts Galore Inc. borrowed $1.6 million from National City Bank. The loan was made at a simple annual interest rate of 12% a year for 3 months. A 25% compensating balance requirement raised the effective interest rate. Do not round intermediate calculations. Round your answers to two decimal places. a. The nominal annual rate on the loan was 11.5%. What is the true effective rate? 12.00 % b. What would be the effective cost of the loan if the note required discount interest? 12.38 % c. What would be the nominal annual interest rate on the loan if the bank did not require a compensating balance but required repayment in three equal monthly installments? %
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on a a discount basis. Problem 7 COST OF TRADE CREDIT AND BANK LOAN Lamar Lumber buys $8 million of materials (net of discounts) on terms of 3/5, net 60, and it currently pays after 5 days and takes discounts. Lamar plans to expand. which will require additional financing. a) If Lamar decides to forgo discounts how much additional credit could it get and what would be the nominal and effective cost of that credit? P) J the company could get the funds from a bank at a rate of 10%, interest paid monthly, based on a 365-day year, what would be the effective cost of the bank loan? (C) Should Lamar use bank debt or additional trade credit? Explain. Page 121 of 161
9. Problem 3-10 (Times-Interest-Earned Ratio) E eBook Times-Interest-Earned Ratio The Morrit Corporation has $570,000 of debt outstanding, and it pays an interest rate of 10% annually. Morrit's annual sales are $3 million, its average tax rate is 25%, and its net profit margin on sales is 3%. If the company does not maintain a TIE ratio of at least 3 to 1, then its bank will refuse to renew the loan, and bankruptcy will result. What is Morrit's TIE ratio? Do not round intermediate calculations. Round your answer to two decimal places.
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