Avicorp has a $10.9 million debt issue outstanding, with a 6.1% coupon rate. The debt has semi-annual coupons, the next coupon is due in six months, and the debt matures in five years. It is currently priced at 94.03% of par value. a. What is Avicorp's pretax cost of debt? b. If Avicorp faces a 25% tax rate, what is its after-tax cost of debt? Note: Assume that the firm will always be able to utilize its full interest tax shield.

Avicorp has a $10.9 million debt issue outstanding, with a 6.1% coupon rate. The debt has semi-annual coupons, the next coupon is due in six months, and the debt matures in five years. It is currently priced at 94.03% of par value. a. What is Avicorp's pretax cost of debt? b. If Avicorp faces a 25% tax rate, what is its after-tax cost of debt? Note: Assume that the firm will always be able to utilize its full interest tax shield.

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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The outstanding debt of Berstin Corp. has ten years to maturity, a current yield of 6%, and a price of $80. What is the pretax cost of debt if the tax rate is 30%. Note: The current yield of a bond is its annual coupon divided by its price. A. 4.65% B. 6% OC. 6.2% OD. 7.75%
Avicorp has a $10.8 million debt issue outstanding, with a 6.1% coupon rate. The debt has semi-annual coupons, the next coupon is due in six months, and the debt matures in five years. It is currently priced at 93.65% of par value. a. What is Avicorp's pretax cost of debt? b. If Avicorp faces a 35% tax rate, what is its after-tax cost of debt? Note: Assume that the firm will always be able to utilize its full interest tax shield. a. The cost of debt is % per year. (Round to two decimal places.)
Avicorp has a $14.4 million debt issue outstanding, with a 5.9% coupon rate. The debt has semi-annual coupons, the next coupon is due in six months, and the debt matures in five years. It is currently priced at 96% of par value. a. What is Avicorp's pre-tax cost of debt? Note: Compute the effective annual return. b. If Avicorp faces a 40% tax rate, what is its after-tax cost of debt? Note: Assume that the firm will always be able to utilize its full interest tax shield. a. The cost of debt is % per year. (Round to four decimal places.) b. If Avicorp faces a 40% tax rate, the after-tax cost of debt is %. (Round to four decimal places.)
J&R Renovation, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 20 years to maturity that is quoted at 108 percent of face value. The issue makes semiannual payments and has a coupon rate of 5 percent annually. a. What is the company's pretax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. If the tax rate is 22 percent, what is the aftertax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Avicorp has a $12.3 million debt issue outstanding, with a 6.1% coupon rate. The debt has semi-annual coupons, the next coupon is due in six months, and the debt matures in five years. It is currently priced at 96% of par value. a. What is Avicorp's pre-tax cost of debt? Note: Compute the effective annual return. b. If Avicorp faces a 40% tax rate, what is its after-tax cost of debt? Note: Assume that the firm will always be able to utilize its full interest tax shield.
Suppose ABE Co. issued a 20-year, 8 percent coupon rate bond three years ago. The bond is currently selling for $715.21. The bond has $1,000 face value and pays interests annually. If ABE’s tax rate is 30 percent, what is the firm’s after-tax cost of debt?
14
Calhoun Company's pre-tax cost of debt if the firm has outstanding bonds with par value of $1,000, a coupon rate of 8%, semi-annual coupon payments, 20 years remaining until maturity, and a market price of $1,058? Enter your answer as an annualized rate in decimal format, and show four decimal places. For example, if your answer is 5.1%, enter .0510.
Lugget Corp. has one bond issue outstanding with an annual coupon of 3.8%, a face value of $ 1,000 and a price of $1,068.24, which matures in 10 years. The company's tax rate is 33 %. What is Lugget's pre-tax cost of debt?
Jimstan & Jimstan Corp. can sell a new 10-year bond with an annual coupon of 5% and a face value of $1,000 for $1,070. The company will incur flotation costs of $40 per bond and has a tax rate of 25%. What is the company's after-tax cost of debt? (use linear allocation method.)
Dixon Corp has 6% coupon bonds outstanding that have a remaining maturity of 12 years. These bonds pay interest semiannually, and are currently selling for $1080 per $1000 face value. If Dixon issues new debt, it plans to sell bonds with a maturity of 12 years. Estimate Dixon's marginal post-tax cost of debt. Dixon faces a marginal tax rate of 30%. 3.06% 4.15% 4.35% 3.57% 2.90%
GM currently has one debt issue that matures in 30 years, pays a semiannual coupon of 5%, costs $ 960, and has a $1000 par. Calculate the pre-tax cost of debt assuming flotation costs of 2%. Please report your answer in percent terms rounded to two decimal places.

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