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 % b. What is Global's after-tax cost of debt? Round your answer to one decimal place. 2.2 %
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 % b. What is Global's after-tax cost of debt? Round your answer to one decimal place. 2.2 %
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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Transcribed Image Text: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.
%
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