6 see picture Keys Printing plans to issue a $1,000 par value, 20-year noncallable bond with a 7.00% annual coupon, paid semiannually. The company's marginal tax rate is40.00%, but Congress is considering a change in the corporate tax rate to 45.00%. By how much would the component cost of debt used to calculate the WACCchange if the new tax rate was adopted? Do not round your intermediate calculations.Oa.-0.4296O b. -0.4496C. -0.36%O d. -0.30%O e. -0.35%6

Cost of Irredeemable debt is the amount of debt which are not repayable during the life of the company. Irredeemable debt is also called perpetual debt. These type of debts are redeemed or repayable at the time of liquidation of the company. These type of debt carries a certain coupon rate of interest. This represents the before tax cost of debt. The cost of irredeemable bond can be calculated using the following equations: Before tax Cost of debt Kd = (I/NP)*100 Where, I = Interest NP = Net Proceeds of Debt Capital or Principal After tax Cost of Debt Kd = (I(1-T)/NP)*100 Where, T = tax rate Cost of Debt @ tax rate of 40% Kd = ( 70(1-0.4)/1000)* 100 = (42/1000) *100 = 4.2% Cost of debt @ tax rate of 45% Kd = ( 70(1-0.45)/1000)* 100 = (38.5/1000) *100 = 3.85% Required cost of debt for calculating WACC by adopting new tax rate = 3.85 - 4.2 = -0.35%

Answered: eorporate tax rate to 45.00%. By how…

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

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Zina Manufacturing Company started and completed Job 501 in December with the following Job Cost Sheet and transferred it to the warehouse. Direct Materials Date Dec 17 Dec 30 Total Direct Labor Amount Date Amount $2,000 Dec 20 $4,000 8,000 Dec 30 3,800 Total Job Cost Sheet - Job No. 501 Total Cost The journal entry to record the transaction is A) WIP Inventory FG Inventory B) Cost of Goods Sold WIP Inventory C) FG Inventory WIP Inventory D) FG Inventory WIP Inventory Debit Credit 35,800 17,800 17,800 Manufacturing Overhead Date Amount Dec 24 $10,000 Dec 30 8,000 Total 35,800 35,800 17,800 17,800 35,800

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eorporate tax rate to 45.00%. By how much would the component cost of debt used to calculate the WACC change if the new tax rate was adopted? Do not round your intermediate calculations. O a. -0.4296