Compute the cost of debt capital.
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Rama company issues 120,000 10% debentures of Rs. 10 each at a premium of 10%. The costs of floatation are 4%. The rate of tax applicable to the company is 55%. Compute the cost of debt capital.
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- Buchanan Corporation is refunding $11 million worth of 11% debt. The new bonds will be issued for 8%. The corporation's tax rate is 40%. The call premium is 10%. What is the net cost of the call premium after taxes? Multiple Choice $664, 500 $660, 000 $695,000 $675,000Buchanan Corporation is refunding $14 million worth of 11% debt. The new bonds will be issued for 8%. The corporation's tax rate is 36%. The call premium is 10%. What is the net cost of the call premium after taxes? Multiple Choice $900,500 $931,000 $911,000 $896,000The tax rate applicable to Ivan Co. is 20%. The firm pays 5% interest on the P350,000 outstanding loan and the total preferred dividends to be distributed is P16,500. What is the Financial Breakeven point?
- Buchanan Corporation is refunding $13 million worth of 11% debt. The new bonds will be issued for 9%. The corporation's tax rate is 31% . The call premium is 10% . What is the net cost of the call premium after taxes? Multiple Choice $901, 500 $932, 000 $912, 000 $897,000Cost of debtWhat is the cost of debt if a company has $100,000 of debt with an annual interest rate of 5% and an income tax rate of 30%?
- A Corporation sold an issue of 15-year bonds, having a total face value of P12,000,000 for P11,000,000. The bonds bear interest at 15%, payable semiannually. The company wishes to establish a sinking fund for retiring the bond issue and will make semiannual deposit that will earn 12%, compounded semiannually. Show the cash flow diagram, and compute the annual cost for interest and redemption of these bonds.Kay Corp is comparing 2 different capital structure. Plan I would in 7,000 shares of stocks and RM160,000 in debt. Plan II would result in 5,000 shares of stock and RM240,000 in debt. The interest rate on the debt is 10%. a) Assuming that the corporate tax rate is 40%. Calculate the break-even levels of EBIT and state the reasons. b) Ignoring taxes what is the price per share of equity under Plan I? Plan II? What principles is illustrated by your answer?The tax rate applicable to Blue Co. is 20%. The firm pays 5% interest on the P350,000 outstanding loan and the total preferred dividends to be distributed is P16,500. What is the Financial Breakeven point?
- Buggins Inc. is financed equally by debt and equity, each with a market value of $1 million. The cost ofdebt is 5%, and the cost of equity is 10%. The company now makes a further $250,000 issue of debt anduses the proceeds to repurchase equity. This causes the cost of debt to rise to 5.5% and the cost of equityto rise to 10.83%. Assume the firm pays no taxes.4. What is the percentage increase in earnings per share after the refinancing?5. What is the new price-earnings multiple? (Hint: Has anything happened to the stock price?)The financial breakeven point of Soil Inc. is P90,000, while the tax rate applicable to the company is 30%. The company pays 10% interest on the P200,000 outstanding loan. How much is the total preferred dividends distributed?Generous Corporation has a cost of equity of 10.8 percent, the YTM on the company's bonds is 6.3 percent, and the tax rate is 35 percent. The company's bonds sell for 103.6 percent of par. The debt has a book value of $420,000 and total assets have a book value of $956,000. If the market-to-book ratio of equity is 2.86 times, what is the company's WACC? 8.90% 780% 9.32% 792%
