Attempts 2. An overview of a firm's cost of debt To calculate the after-tax cost of debt, multiply the before-tax cost of debt by Three Waters Company (TWC) can borrow funds at an interest rate of 12.50% (rounded to two decimal 40%. TWC's after-tax cost of debt is Keep the Highest/3 O4.22% At the present time, Three Waters Company (TWC) has 10-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,278.41 per bond, carry a coupon rate of 11%, and distribute annual coupon payments. The company incurs a federal- plus-state tax rate of 40%. If TWC wants to issue new debt, what would be a reasonable estimate for its after-tax cost of debt (rounded to two decimal places)? O 3.80 % O 5.06% O4.85 % (1+T)od of four years. Its marginal federal-plus-state tax rate is (1-T)
Attempts 2. An overview of a firm's cost of debt To calculate the after-tax cost of debt, multiply the before-tax cost of debt by Three Waters Company (TWC) can borrow funds at an interest rate of 12.50% (rounded to two decimal 40%. TWC's after-tax cost of debt is Keep the Highest/3 O4.22% At the present time, Three Waters Company (TWC) has 10-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,278.41 per bond, carry a coupon rate of 11%, and distribute annual coupon payments. The company incurs a federal- plus-state tax rate of 40%. If TWC wants to issue new debt, what would be a reasonable estimate for its after-tax cost of debt (rounded to two decimal places)? O 3.80 % O 5.06% O4.85 % (1+T)od of four years. Its marginal federal-plus-state tax rate is (1-T)
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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Transcribed Image Text:Assignment: Chapter 11 Cost of Capital
Attempts
2. An overview of a firm's cost of debt
Keep the Highest/3
To calculate the after-tax cost of debt, multiply the before-tax cost of debt by
Three Waters Company (TWC) can borrow funds at an interest rate of 12.50% (2+T)od of four years. Its marginal federal-plus-state tax rate is
40%. TWC's after-tax cost of debt is
(rounded to two decimal(1-T)
At the present time, Three Waters Company (TWC) has 10-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have
a current market price of $1,278.41 per bond, carry a coupon rate of 11%, and distribute annual coupon payments. The company incurs a federal-
plus-state tax rate of 40%. If TWC wants to issue new debt, what would be a reasonable estimate for its after-tax cost of debt (rounded to tw
decimal places)?
O4.22%
O 3.80 %
O 5.06%
4.85%
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