Cost of debt. Dunder-Mifflin, Inc. (DMI) is selling 600,000 bonds to raise money for the publication of new magazines in the coming year. The bond will pay a coupon rate of 12.1% withsemiannual payments and will mature in 30 years. Its par value is $100. What is the cost of debt to DMI if the bonds raise the following amounts (ignoring issuing costs)?a. $57,858,000b. $56,928,000c. $70,482,000d. $76,212,000

Yield to maturity( YTM) is the rate of return that the bondholders will get if they invest and bond…

Answered: Cost of debt. Dunder-Mifflin, Inc.…

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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Oberon, Incorporated has a $30 million (face value) 8-year bond issue selling for 97 percent of par that pays an annual coupon of 8.30 percent. What would be Oberon's before-tax component cost of debt? Note: Round your answer to 2 decimal places. Cost of debt Explanation Solve {$970=$83.00×[1-1/(1+iD)^8/]+iD$1,000(1+iD)8} for iD Yields iD=0.088388, or 8.84%. \table[[A,B,C,],[1,Maturity,8,],[2,Price,97%,$29,100,000.00
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.)
To help finance a major expansion, a company sold a noncallable bond several years ago that now has 14 years to maturity. This bond has a 14.00% annual coupon, paid semiannually, sells at a price of $1,400, and has a par value of $1,000. If the firm's tax rate is 21%, what is the component cost of debt for use in the WACC calculation? Do not round your intermediate calculations. 8.94% 7.06% 3.53%
KatyDid Clothes has a $110 million (face value) 25-year bond issue selling for 102 percent of par that carries a coupon rate of 8 percent. paid semiannually What would be Katydid's before-tax component cost of debt? Note: Round your answer to 2 decimal places. Cost of debt %
(Cost of debt) Sincere Stationery Corporation needs to raise $500,000 to improve its manufacturing plant. It has decided to issue a $1,000 par value bond with an annual coupon rate of 10 percent with interest paid semiannually and a 10-year maturity. Investors require a rate of return of 9 percent. a. Compute the market value of the bonds. b. How many bonds will the firm have to issue to receive the needed funds? c. What is the firm's after-tax cost of debt if the firm's tax rate is 34 percent?
(Cost of debt) Sincere Stationery Corporation needs to raise $500,000 to improve its manufacturing plant. It has decided to issue a $1,000 par value bond with an annual coupon rate of 14 percent and a maturity of 10 years. The investors require a rate of return of 9 percent. a. Compute the market value of the bonds b. What will the net price be if flotation costs are 10.5 percent of the market price? c. How many bonds will the firm have to issue to receive the needed funds? d. What is the firm's after-tax cost of debt if its average tax rate is 25 percent and its marginal tax rate is 21 percent? e. Rework the problem as follows: Assume a coupon rate of 8 percent. f. What effect does changing the coupon rate have on the firm's after-tax cost of capital? Why is there a change? GUD a. If the bond's annual coupon rate is 14%, what is the market value of the bond? (Round to the nearest cent.) b. What will the net price be if flotation costs are 10.5 percent of the market price? (Round to…
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(Cost of debt) Sincere Stationery Corporation needs to raise $459,000 to improve its manufacturing plant. It has decided to issue a $1,000 par value bond with an annual coupon rate of 11.2 percent with interest paid semiannually and a 15-year maturity. Investors require a rate of return of 8.6 percent. a. Compute the market value of the bonds. b. How many bonds will the firm have to issue to receive the needed funds? c. What is the firm's after-tax cost of debt if the firm's tax rate is 34 percent? a. The market value of the bonds is $ (Round to the nearest cent.)

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