GM currently has one debt issuethat matures in 30 years, pays asemiannual coupon of 5%, costs $960, and has a $1000 par. Calculatethe pre-tax cost of debt assumingflotation costs of 2%. Please reportyour answer in percent termsrounded to two decimal places.

Par Value =1000Number of Periods(n) =30*2 =60Price of Bond =960*(1-Flotation Cost)=960*(1-2%)…

Answered: GM currently has one debt issue that…

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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1. To calculate the after-tax cost of debt, multiply the before-tax cost of debt by ______. 2. Western Gas & Electric Company (WGC) can borrow funds at an interest rate of 12.50% for a period of six years. Its marginal federal-plus-state tax rate is 25%. WGC’s after-tax cost of debt is ________. (rounded to two decimal places). 3. At the present time, Western Gas & Electric Company (WGC) has 15-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,555.38 per bond, carry a coupon rate of 11%, and distribute annual coupon payments. The company incurs a federal-plus-state tax rate of 25%. If WGC wants to issue new debt, what would be a reasonable estimate for its after-tax cost of debt (rounded to two decimal places)? (Note: Round your YTM rate to two decimal place.) 4.73% 4.11% 4.93% 3.29%
Please answer all questions and show all calculations. Thank you.
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GM currently has one debt issue that matures in 30 years, pays a semiannual coupon of 5%, costs $ 960, and has a $1000 par. Calculate the pre-tax cost of debt assuming flotation costs of 2%. Please report your answer in percent terms rounded to two decimal places.