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. Theexisting bonds, which have a face value equal to $1,000 and a coupon rate of interest equal to 8 percent (semiannual payments), mature in 10 years. These bonds are currently selling for$1,149 each. Global's marginal tax rate is 40 percent.a. What should be the coupon rate on the new bond issue? Round your answer to one decimal place.%b. What is Global's after-tax cost of debt? Round your answer to one decimal place.%

a. Coupon Rate on the New Bond Issue:When determining the coupon rate for the new bond issue, we…

Answered: Global Products plans to issue…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter3: Evaluation Of Financial Performance

Section: Chapter Questions

Problem 17P

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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, which have a face value equal to $1,000 and a coupon rate of interest equal to 7 percent (semiannual payments), mature in 20 years. These bonds are currently selling for $949 each. Global's marginal tax rate is 40 percent. a. What should be the coupon rate on the new bond issue? Round your answer to one decimal place. 3.7 eBook 2.2 % b. What is Global's after-tax cost of debt? Round your answer to one decimal place. %
Universal Manufacturing plans to issue long-term bonds to raise funds to support future expansion. 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, have a coupon rate of interest equal to 5 percent (semiannual payments), and mature in 14 years. These bonds are currently selling for $1,084 each. Universal’s marginal tax rate is 35 percent. (a) What should be the coupon rate on the new bond issue? (b) What is Universal’s after-tax cost of debt?
Universal Manufactoring plans to issue long-term bonds to raise funds to support future expansion. The company has existing bonds outstanding that are similar to the new bonds its expects to issue. The existing bonds have a face value ewqual to $1,000, have a coupon rate of interest equal to 5 percent (semiannual payments), and mature in 14 years. These bonds are currently selling for $1,084 each. Universal's marginal tax rate is 35 percent. (a) What should be the coupon rate on the new bond issue? (b) What is Universal'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 that are similar to the bonds it expects to issue. The existing bonds have a face value of $1000, mature in 10 years, pay $60 interest coupon annually, and are currently selling for $1077 each. (Therefore, the current YTM on the bonds is 5 percent.) Assume that Global will issue the new bonds at an interest rate cost of 5 percent based on the current YTM on its existing bonds. Global's marginal tax rate is 40%. What is the after-tax cost of debt?
Crandal Dockworks is undergoing a major expansion. The expansion will be financed by issuing new 15-year, $1,000 par, 9% annual coupon bonds. The market price of the bonds is $1,070 each. Crandal's flotation expense on the new bonds will be $50 per bond. Crandal's marginal tax rate is 35%. What is the pre-tax cost of debt for the newly-issued bonds? A. 10.25% B. 8.76% C. 8.12% D. 7.49%
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To help finance a major expansion, ABC Company sold a noncallable bond several years ago that now has 20 years to maturity. This bond has a 9.25% annual coupon, paid semiannually, sells at a price of $875, and has a par value of $1,000. If the firm's tax rate is 35%, what is the after-tax cost of debt for use in the WACC calculation?
Russell Container Corporation has a RM1,000 par value bonds outstanding with 20 years to maturity. The bond carries an annual interest payment of RM95 and is currently selling for RM920 per bond. Russell Corp. is in a 25 percent tax bracket. The firm wishes to know the after-tax cost of a new bond issue is likely to be. The yield to maturity on the new issue will be the same as the yield to maturity on the old issue because the risk and maturity date will be similar. i. Compute the yield to maturity on the old issue and use this as the yield for the new issue. ii. Make the appropriate tax adjustment to determine the after-tax cost of debt.
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 its before-tax cost of debt be? (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
Galvatron Metals has a bond outstanding with a coupon rate of 6.1 percent and semiannual payments. The bond currently sells for $947 and matures in 23 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?
Housing and Development Board (HDB) Ltd also currently sells corporate bonds to investors for$1,120. The coupon rate is 15 percent and par value of $1,000. Interest is payable annually, andmaturity period is for 10 years. To provide income stability, you want to find out the following: i. Current Yield ii. Yield to maturity iii. Explain the relationship that exists between the coupon interest rate and yield to maturity and par value and market value of a bond
Thatcher Corporation’s bonds will mature in 10 years. The bonds have a face value of $1,000 and an 8 percent coupon rate, paid semiannually. The price of the bond is $1,100. What is the firm’s cost (percentage rate) of borrowing money under these market conditions?

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