Galvatron Metals has a bond outstanding with a coupon rate of 6.5 percent and semiannual payments. The bond currently sells for $1,905 and matures in15 years. The par value is $2,000 and the company's tax rate is 21 percent. What is the company's aftertax cost of debt?Multiple Choice3.89%3.51%5.54%3.27%4.46%

After-tax cost of debt refers to the cost that is being incurred over the borrowed amount by the…

Galvatron Metals has a bond outstanding with a coupon rate of 6.5 percent and semiannual payments. The bond currently sells for $1,905 and matures 15 years. The par value is $2,000 and the company's tax rate is 21 percent. What is the company's aftertax cost of debt? Multiple Choice О 3.89% О 3.51% о 5.54%

Galvatron Metals has a bond outstanding with a coupon rate of 6.5 percent and semiannual payments. The bond currently sells for $1,905 and matures 15 years. The par value is $2,000 and the company's tax rate is 21 percent. What is the company's aftertax cost of debt? Multiple Choice О 3.89% О 3.51% о 5.54%

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter11: Determining The Cost Of Capital

Section: Chapter Questions

Problem 9P: Bond Yield and After-Tax Cost of Debt A companys 6% coupon rate, semiannual payment, 1,000 par value...

See similar textbooks

Related questions

Q: The Christopher Co. issued 8%, semi-annuall coupon bonds with 6 years to maturity. Each bond is…

A: Cost of debt is the post tax Yield to Maturity of which is the IRR of the bond. YTM is the rate that…

Q: Consider a zero coupon bond with nominal $1,000 and a term of 1 year. The income tax rate is 30% and…

A: In case of zero coupon bond is born do not have any interest component but these wants provide…

Q: Ladder Works has debt outstanding with a coupon rate of 6 percent and a yield to maturity of 6.8…

A: Cost of Debt It is the cost of raising capital of debt sources by the issuer(company).…

Q: es Suppose your company needs to raise $69 million and you want to issue 30-year bonds for this…

A: A bond is a fixed-income investment that represents a loan made by an investor to a borrower,…

Q: Beckham Corporation has semiannual bonds outstanding with 15 years to maturity and the bonds are…

A: Bonds are debt instruments issued by companies. The issuing company pays periodic coupons to the…

Q: Ying Import has several bond issues outstanding, each making semiannual interest payments. The bonds…

A: Bonds are debt securities issued by governments and private companies to raise funds from the…

Q: f the corporate tax rate is 23 percent, what is the aftertax cost of the company's debt?

A: The cost of debt denotes the actual rate at which a company compensates for its borrowed capital,…

Q: If the corporate tax rate is 34%, what is the after-tax cost of the company's debt? (Do not round…

A: The after-tax cost of debt measures the actual interest rate that a firm pays on its debt after…

Q: Desert Trading Company has issued $100 million worth of long-term bonds at a fixed rate of 10%. The…

A: Effective Interest Rate is the rate of interest on the financial instrument that is actually paid or…

Q: Eastern Bank Limited (EBL) has issued a12% Semi-annual Corporate Bond of Tk. 1000 for 8 years. The…

A: Part i) Market price = E(1-(1+r)^-n)/r + F/(1+r)^n Where, E = semiannual coupon = 1000 * 12% * 1/2 =…

Q: Galvatron Metals has a bond outstanding with a coupon rate of 5.9 percent and semiannual payments.…

A: Cost of debt refers to the value to be paid to the financers of the company.

Q: Company X wants to borrow $10,000,000 floating for 5 years; company Y wants to borrow $10,000,000…

A: The degree of risk attached to the borrower directly relates to interest rates. In order to make up…

Q: Beckham Corporation has semiannual bonds outstanding with nine years to maturity that are currently…

A: A bond is a kind of debt security issued by the government and private companies to the public for…

Q: mport Industries has 7,000 perpetual bonds outstanding with a face value of $2,000 each. The bonds…

A: PV of tax shield from perpetual debt is calculated using the formula below:- PV of tax shield from…

Q: Mojo Mining has a bond outstanding that sells for $2,183 and matures in 19 years. The bond pays…

A: Cost of debt: It is the overall rate that the company pays to utilize these kinds of debt financing.

Q: ACB Products has a bond issue outstanding with 8 years remaining to maturity, a coupon rate of 10…

A: Bonds are debt instruments issued by companies. The issuing company pays periodic interest or…

Question

Galvatron Metals has a bond outstanding with a coupon rate of 6.5 percent and semiannual payments. The bond currently sells for $1,905 and matures in
15 years. The par value is $2,000 and the company's tax rate is 21 percent. What is the company's aftertax cost of debt?
Multiple Choice
3.89%
3.51%
5.54%
3.27%
4.46%

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1: Introduction of after-tax cost of debt

VIEW

Step 2: Calculation of after-tax cost of debt

VIEW

Solution

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 3 steps with 2 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Bond Yield and After-Tax Cost of Debt A companys 6% coupon rate, semiannual payment, 1,000 par value bond that matures in 30 years sells at a price of 515.16. The companys federal-plus-state tax rate is 40%. What is the firms after-tax component cost of debt for purposes of calculating the WACC? (Hint: Base your answer on the nominal rate.)
Galvatron Metals has a bond outstanding with a coupon rate of 6.4 percent and semiannual payments. The bond currently sells for $950 and matures In 24 years. The par value is $1,000 and the company's tax rate is 21 percent. What is the company's aftertax cost of debt? Multiple Choice O O O 5.39% 4.34% 3.78% 3.41% 3.19%
Galvatron Metals has a bond outstanding with a coupon rate of 6.5 percent and semiannual payments. The bond currently sells for $951 and matures in 23 years. The par value is $1,000 and the company's tax rate is 25 percent. What is the company's aftertax cost of debt? Multiple Choice О 5.20% 5.50% 4.80% 3.23% 3.46%
Galvatron Metals has a bond outstanding with a coupon rate of 6.4 percent and semiannual payments. The bond currently sells for $950 and matures in 24 years. The par value is $1,000 and the company's tax rate is 21 percent. What is the company's after-tax debt cost? Group of answer choices 4.34% 3.78% 3.41% 5.39% 3.19%
Dengar
Save & Exit Galvatron Metals has a bond outstanding with a coupon rate of 6.2 percent and semiannual payments. The bond currently sells for $948 and matures in 24 years. The par value is $1,000 and the company's tax rate is 35 percent. What is the company's aftertax cost of debt? Multiple Choice 4.31% 3.98% 3.10% 3.32% 4.57%
Mojo Mining has a bond outstanding that sells for $2,174 and matures in 18 years. The bond pays semiannual coupons and has a coupon rate of 7.14 percent. The par value is $2,000. If the company's tax rate is 21 percent, what is the aftertax cost of debt? Multiple Choice O O 6.07% 4.75% 534% 65th
Beckham Corporation has semiannual bonds outstanding with 15 years to maturity and the bonds are currently priced at $846.16. If the bonds have a coupon rate of 8.5 percent, then what is the after-tax cost of debt for Beckham if its marginal tax rate is 35%? 5.283% 6.868% 10.401% 7.655%
Raghubhai
Inventive Response has bonds outstanding that mature in 8.5 years, have a 4 percent coupon, and pay interest annually. These bonds have a face value of $1,000 and a current market price of $1,180.30. What is the company’s after-tax cost of debt if its tax rate is 21 percent? 1.35 percent 1.70 percent 2.15 percent 2.65 percent 3.40 percent
Hydro Systems has bonds outstanding with a face value of $1,000, 13 years to maturity, and a coupon rate of 6.5 percent, paid semi-annually. What is the company's pretax cost of debt if the bonds currently sell for $1,056? Group of answer choices 5.88 percent 6.42 percent 5.55 percent 5.36 percent 4.71 percent
Beckham Corporation has semiannual bonds outstanding with nine years to maturity that are currently priced at $894.08. If the bonds have a coupon rate of 5 percent, then what is the after- tax cost of debt for Beckham if its marginal tax rate is 27 percent? Complete the calculation as is done on Wall Street. 4.8% 2.4% 3.14% 6.5% Onone of these