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Global Products plans to issue long-term bonds to raise funds to finance its growth. The company has existing bonds outstanding that are similar to the new bonds it expects to issue. The existing bonds have a face value equal to $1,000, mature In 10 years, pay $60 interest annually, and are currently selling for $1,077 each. Global's marginal tax rate is 40 percent. (a) What should be the 11-1 coupon rate on the new bond issue? (a) What is Global's after-tax cost of debt?

Global Products plans to issue long-term bonds to raise funds to finance its growth. The company has existing bonds outstanding that are similar to the new bonds it expects to issue. The existing bonds have a face value equal to $1,000, mature In 10 years, pay $60 interest annually, and are currently selling for $1,077 each. Global's marginal tax rate is 40 percent. (a) What should be the 11-1 coupon rate on the new bond issue? (a) What is Global's after-tax cost of debt?

Essentials Of Investments
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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11-1 and 11-3

**Problems** **11-1** Global Products plans to issue long-term bonds to raise funds to finance its growth. The company has existing bonds outstanding that are similar to the new bonds it expects to issue. The existing bonds have a face value equal to $1,000, mature in 10 years, pay $60 interest annually, and are currently selling for $1,077 each. Global’s marginal tax rate is 40 percent. (a) What should be the coupon rate on the new bond issue? (b) What is Global’s after-tax cost of debt? **11-2** Notable Nothings plans to issue new bonds with the same yield as its existing bonds. The existing bonds have a coupon rate of interest equal to 5.6 percent (semiannual interest payments), 12 years remaining until maturity, and a $1,000 maturity value. They are currently selling for $918 each. (a) If Notable issues new bonds today, what will be its before-tax cost of debt? (b) What will be its before-tax cost of debt if the price of its existing bonds is $730 when Notable issues the new bonds? **11-3** Buoyant Cruises plans to issue preferred stock with a $120 par value and a 5 percent dividend. Even though the current market value of its preferred stock is $80 per share, Buoyant expects to net only $75 for each share issued. What is its cost of issuing preferred stock? The firm’s marginal tax rate is 34 percent. **11-4** Jumbo Juice’s preferred stock pays a constant dividend equal to $4.75 per share. The firm’s marginal tax rate is 40 percent. Jumbo Juice is planning to issue new preferred stock to finance its current project. The current market price of the preferred stock is $50 per share. What is the cost of Jumbo Juice’s new preferred stock issuance?
Transcribed Image Text:**Problems** **11-1** Global Products plans to issue long-term bonds to raise funds to finance its growth. The company has existing bonds outstanding that are similar to the new bonds it expects to issue. The existing bonds have a face value equal to $1,000, mature in 10 years, pay $60 interest annually, and are currently selling for $1,077 each. Global’s marginal tax rate is 40 percent. (a) What should be the coupon rate on the new bond issue? (b) What is Global’s after-tax cost of debt? **11-2** Notable Nothings plans to issue new bonds with the same yield as its existing bonds. The existing bonds have a coupon rate of interest equal to 5.6 percent (semiannual interest payments), 12 years remaining until maturity, and a $1,000 maturity value. They are currently selling for $918 each. (a) If Notable issues new bonds today, what will be its before-tax cost of debt? (b) What will be its before-tax cost of debt if the price of its existing bonds is $730 when Notable issues the new bonds? **11-3** Buoyant Cruises plans to issue preferred stock with a $120 par value and a 5 percent dividend. Even though the current market value of its preferred stock is $80 per share, Buoyant expects to net only $75 for each share issued. What is its cost of issuing preferred stock? The firm’s marginal tax rate is 34 percent. **11-4** Jumbo Juice’s preferred stock pays a constant dividend equal to $4.75 per share. The firm’s marginal tax rate is 40 percent. Jumbo Juice is planning to issue new preferred stock to finance its current project. The current market price of the preferred stock is $50 per share. What is the cost of Jumbo Juice’s new preferred stock issuance?
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