Husky Enterprises recently sold an issue of 13-year maturity bonds. The bonds were sold at a deep discount price of $625 each. After flotation costs, Husky received $609.64 each. The bonds have a $1,000 maturity value and pay $45 interest at the end of each year. Compute the after-tax cost of debt for these bonds if Husky’s marginal tax rate is 40 percent. Use Table II and Table IV to answer the question. Round your answer to one decimal place. Tables 2 and 4 are attached. Thank you.
Husky Enterprises recently sold an issue of 13-year maturity bonds. The bonds were sold at a deep discount price of $625 each. After flotation costs, Husky received $609.64 each. The bonds have a $1,000 maturity value and pay $45 interest at the end of each year. Compute the after-tax cost of debt for these bonds if Husky’s marginal tax rate is 40 percent. Use Table II and Table IV to answer the question. Round your answer to one decimal place. Tables 2 and 4 are attached. Thank you.
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
Related questions
Question
Husky Enterprises recently sold an issue of 13-year maturity bonds. The bonds were sold at a deep discount price of $625 each. After flotation costs, Husky received $609.64 each. The bonds have a $1,000 maturity value and pay $45 interest at the end of each year. Compute the after-tax cost of debt for these bonds if Husky’s marginal tax rate is 40 percent. Use Table II and Table IV to answer the question. Round your answer to one decimal place.
Tables 2 and 4 are attached. Thank you.
Transcribed Image Text:TABLE II
Present Value Interest Factor (PVIF) ($1 at i % per period for a periods);
PVIF
PV=FV (PVIFi,n)
(1 + i)"
Period, n
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
BISHER58
19 0.828
20 0.820
24 0.788
25 0.780
30 0.742
40 0.672
50 0.608
60 0.550
01234 INST
Period, n 14%
10
11
12
13
1%
1.000
0.990
0.980
0.871 0.813
0.760
0.583
0.933
0.923 0.853 0.789
0.547 0.513
0.540 0.502 0.467 0.434
0.731
0.914 0.837 0.766
0.500
0.463
0.429 0.388
0.460 0.424
0.422 0.386
0.905 0.820 0.744
0.804
0.896
0.350
0.887
0.356
0.319
0.326 0.290
0.703
0.676
0.722 0.650 0.585 0.527 0.475
0.788 0.701 0.625 0.557 0.497
0.444 0.397
0.879 0.773 0.681 0.601 0.530
0.469
0.415 0.368
0.870 0.758 0.661 0.577 0.505 0.442 0.388 0.340
0.299 0.263
0.861 0.743 0.642 0.555 0.481 0.417 0.362 0.315 0.275 0.239
0.853 0.728 0.623 0.534 0.458 0.394 0.339 0.292 0.252 0.218
0.844 0.714 0.605 0.513
0.436 0.371 0.317 0.270 0.231 0.198
18 0.836 0.700 0.587 0.494 0.416 0.350 0.296 0.250 0.212 0.180
0.686 0.570 0.475 0.396 0.331 0.276 0.232
0.194 0.164
0.673 0.554 0.456 0.377 0.312 0.258 0.215 0.178 0.149
0.622 0.492 0.390 0.310 0.247 0.197 0.158 0.126 0.102
0.610 0.478
0.375 0.295 0.233 0.184 0.146 0.116 0.092
0.552 0.412 0.308 0.231 0.174 0.131 0.099 0.075
0.453 0.307
0.208 0.142 0.097 0.067 0.046 0.032
0.372 0.228 0.141 0.087 0.054 0.034 0.021
0.305 0.170 0.095
0.030
0.057
0.022
0.054
0.017
0.010
14
15
0.971
0.961
16
17
18
19
0.951
0.906
0.863
0.942 0.888 0.838
40
50
60
2%
3%
1.000 1.000
0.980 0.971
0.961 0.943
0.942 0.915
0.924 0.889
15%
1.000
0.877 0.870
1.000
18%
19%
20%
1.000 1.000
1.000
0.847
0.840
0.833
0.731
0.718
0.706
0.694
0.624 0.609
0.593 0.579
0.552
0.534
0.516
0.499
5 0.519
0.476
0.456
0.437
0.419
0.497
0.432 0.410
6
0.456
0.390 0.370
0.352
0.376 0.354 0.333 0.314
8
0.233
9
0.194
0.208 0.191 0.176
0.162
0.135
0.208 0.187
0.112
7 0.400
0.351 0.327 0.305 0.285 0.266
0.308 0.284 0.263 0.243 0.225
0.270 0.247 0.227
0.237 0.215 0.195 0.178 0.162 0.148
0.168 0.152 0.137 0.124
0.145 0.130 0.116 0.104 0.093
0.160 0.141 0.125 0.111 0.099 0.088 0.078
0.140 0.123 0.108 0.095 0.084 0.074 0.065
0.123 0.107 0.093 0.081 0.071 0.062 0.054
0.108 0.093 0.080 0.069
0.095 0.081 0.069 0.059
0.182 0.163
0.060 0.052 0.045
0.044
0.038
0.037 0.031
0.083 0.070
0.073 0.061
0.060 0.051
0.051 0.043
20
0.043 0.035
0.028 0.023
24
25 0.038 0.030
30
0.024 0.020
0.020 0.015 0.012 0.009
0.002
0.000
0.005 0.004 0.003
0.001
0.001 0.001
0.000
0.000
0.000
0.769 0.756
5%
7%
4%
1.000 1.000
6%
1.000 1.000
0.962 0.952 0.943 0.935
0.925 0.907
0.890 0.873
0.889
0.855
0.822
0.790
0.675 0.658
0.592 0.572
16%
1.000
0.862
0.743
0.641
0.864
0.823 0.792 0.763
0.747
0.784
0.746 0.705
0.711
0.677
0.840 0.816 0.794
0.735
0.713 0.681
0.666
0.630
0.665 0.623
0.627
0.582
0.645 0.592
0.544
0.614 0.558 0.508
17%
1.000
0.855
8%
1.000
0.926
0.857
0.296
0.249
0.209
0.482
0.402
0.335
0.279
9%
10%
1.000 1.000
0.917 0.909
0.842
0.826
0.772
0.751
0.708 0.683
0.051
0.043
0.026
0.037 0.031
0.019 0.015 0.013
0.016 0.013 0.010
0.007 0.005 0.004
0.001
0.001
0.001
0.000
0.000
0.000
0.000 0.000 0.000
0.000
0.650
0.621
0.596 0.564
24%
1.000
0.806
0.650
0.524
0.423
0.341
0.275
0.222
0.179
0.144
0.116
0.094
0.013 0.009 0.005
0.006
0.003
0.002
0.076
0.061
0.049
0.040
0.032
0.026
0.021
0.017
0.014
0.006
0.005
0.002
0.000
0.000
0.000
11%
12%
1.000
1.000
0.901 0.893
0.812 0.797
0.731 0.712
0.659
0.636
0.593
0.535
28%
1.000
0.781
0.610
0.477
0.373
0.291
0.227
0.178
0.139
0.108
0.085
0.482 0.452
0.404
0.391 0.361
0.352 0.322
0.317
0.286
0.258
0.229
0.232 0.205
0.209
0.183
0.188 0.163
0.007
0.003
0.170 0.146
0.153 0.130
0.044
0.015
0.138 0.116
0.124 0.104
0.082 0.066
0.074
0.059
0.033
0.011
32%
1.000
0.758
0.574
0.435
0.329
0.250
0.189
0.143
0.066
0.052
0.040 0.027
0.567
0.507
0.032 0.021
0.025 0.016
0.019 0.012
0.015 0.009
0.012 0.007
0.009
0.287
0.257
0.158
0.116
0.108 0.085
0.082
0.063
0.062
0.047
0.004
0.001
0.003
0.001
0.002 0.001
0.001 0.000
0.000 0.000
0.000
0.000
0.000
0.000
36%
1.000
0.735
0.541
0.398
0.292
0.215
0.036 0.025
0.018
0.004
0.005 0.003
0.014
0.010
0.007
0.005
13%
1.000
0.885
0.783
0.693
0.613
0.543
0.480
0.425
0.376
0.333
0.295
0.261
0.231
0.204
0.181
0.160
0.141
0.125
0.111
0.098
0.087
0.053
0.047
0.026
0.008
0.002
0.001
40%
1.000
0.714
0.046 0.035
0.034
0.025
0.510
0.364
0.260
0.186
0.133
0.095
0.068
0.048
0.018
0.013
0.009
0.006
0.005
0.003
0.002
0.002
0.002 0.001
0.001
0.000
0.000 0.000
0.000 0.000
0.000
0.000
0.000
0.000
0.000 0.000
Transcribed Image Text:TABLE N
Present Value of an Annuity Interest Factor (PVIFA) ($1 per period at 7% per period for a periods);
- PVAN PMT (PVIFA,,n)
PVIFA
Period, n 1%
7%
8%
2% 3%
0.980 0.971
1.942 1.913
1 0.990
2 1.970
0.926
4% 5%
0.962 0.952
1.886 1.859
2.775 2.723
6%
0.943 0.935
1.833 1.808
1.783
2.673 2.624
2.577
3.240
3.993 3.890
6.247
3 2.941 2.884 2.829
3.902 3.808 3.717 3.630 3.546 3.465 3.387 3.312
4.853 4.713 4.580 4.452 4.329 4.212 4.100
5.795 5.601 5.417 5.242 5.076 4.917 4.766 4.623
6.728 6.472 6.230 6.002 5.786 5.582 5.389 5.206
7.652 7.325 7.020 6.733 6.463 6.210 5.971 5.747
9 8.566 8.162 7.786 7.435 7.108 6.802 6.515
10 9.471 8.983 8.530 8.111 7.722 7.360 7.024
11 10.368 9.787 9.253 8.760 8.306 7.887 7.499
12 11.255 10.575 9.954 9.385 8.863 8.384 7.943
13 12.134 11.348 10.635 9.986 9.394 8.853 8.358
14 13.004 12.106 11.296 10.563 9.899 9.295
15 13.865 12.849 11.938 11.118 10.380 9.712
14.718 13.578 12.561 11.652 10.838 10.106 9.447 8.851
15.562 14.292 13.166 12.166 11.274 10.477
9.763 9.122
16.398 14.992 13.754 12.659 11.690 10.828 10.059 9.372
17.226 15.678 14.324 13.134 12.085 11.158 10.336 9.604
20 18.046 16.351 14.877 13.590 12.462 11.470 10.594 9.818
24 21.243 18.914 16.936 15.247 13.799 12.550 11.469 10.529 9.707 8.985
25 22.023 19.523 17.413 15.622 14.094 12.783 11.654 10.675 9.823 9.077
30 25.808 22.397 19.600 17.292 15.373 13.765 12.409 11.258 10.274 9.427
40 32.835 27.355 23.115 19.793 17.159 15.046 13.332 11.925
10.757 9.779
50 39.196 31.424 25.730 21.482 18.256 15.762 13.801 12.233 10.962 9.915
60 44.955 34.761 27.676 22.623 18.929 16.161 14.039 12.377
11.048 9.967
WN
45678 CM
16
17
18
19
Period, n 14%
1234567
15%
0.877 0.870
1.647 1.626
2.322 2.283
2.914 2.855
3.433 3.352
3.889 3.784
4.160
30
40
50
60
16%
0.862
1.605
2.246
2.798
3.274
17%
0.855
1.585
2.210
2.743 2.690
3.199
3.127
3.589
3.922
18%
19%
0.847
0.840
1.566 1.547
2.174
2.140
4.207
4.451
3.685
7 4.288
4.039
8
4.639
4.487 4.344
9
4.946 4.772 4.607
5.216 5.019 4.833
10
4.659
4.494
4.988 4.793 4.611
14
15
16
18 6.467
11 5.453 5.234 5.029 4.836 4.656
12 5.660 5.421 5.197
13 5.842 5.583
5.342 5.118 4.910 4.715
6.002 5.724 5.468 5.229 5.008 4.802
6.142 5.847 5.575 5.324 5.092 4.876
6.265 5.954 5.669 5.405 5.162 4.938
17 6.373 6.047 5.749 5.475 5.222 4.990
6.128 5.818 5.534 5.273 5.033
6.550 6.198
5.877 5.584 5.316 5.070
6.623 6.259 5.929 5.628 5.353 5.101
24 6.835 6.434 6.073 5.746 5.451
25 6.873 6.464 6.097
7.003 6.566 6.177 5.829
7.105 6.642 6.233 5.871 5.548 5.258
7.133 6.661 6.246 5.880 5.554 5.262
5.882 5.555 5.263
19
20
5.182
5.766 5.467
5.195
7.140 6.665 6.249
3.498
3.812
4.078
4.303
8.745 8.244
9.108 8.559
2.639
3.058
3.410
3.706
6.710
7.139
3.954
4.163
4.339
4.486
7.536
7.161
7.904 7.487
20%
0.833
1.528
2.106
2.589
2.991
3.326
3.605
3.837
4.031
4.193
4.327
4.439
4.533
9%
10%
0.917 0.909
1.759 1.736
2.531
2.487
3.170
3.791
4.355
4.868
4.812
4.844
4.486
5.033
5.535
5.995
6.418
6.805
4.870
4.937
4.948
5.517 5.235 4.979
4.997
4.999
5.000
7.786
8.061
8.312
8.544
24%
0.806
1.457
1.981
2.404
2.745
3.020
3.242
3.421
3.566
4.611
4.675
4.730
4.033
4.775 4.059
8.756
8.201
8.950 8.365
3.962
4.001
5.335
5.759
6.145
6.495
4.080
4.097
4.110
4.143
4.147
6.814
7.103
4.160
4.166
4.167
4.167
7.367
7.606
7.824
8.022
11%
0.901
1.713
2.444
12%
0.893
1.690
2.402
3.102 3.037
3.696
3.605
28%
0.781
1.392
1.868
4.231 4.111
4.712
4.564
5.146 4.968
5.537 5.328
5.889
5.650
6.207 5.938
9.128 8.514 7.963 7.469
8.348
7.784
8.422
7.843
8.694
8.055
8.951 8.244
9.042 8.304
9.074
8.324
6.492
6.750
6.982
7.191
7.379
7.549
7.702
7.839
3.682
3.269
2.930
3.776 3.335
2.978
3.851
3.387
3.013
3.912
3.427
3.040
3.459
3.061
3.483 3.076
32%
0.758
1.332
1.766
2.241 2.096
2.532
2.345
2.759
2.937
3.076 2.786
3.184 2.868
2.534
2.678
3.503
3.088
3.518 3.097
3.529
3.104
3.539 3.109
3.546
3.113
3.562 3.121
3.564 3.122
3.569 3.124
3.571
3.125
3.571
3.571
6.194
6.424
3.125
3.125
6.628
6.811
6.974
7.120
7.250
7.366
36%
0.735
1.276
1.674
1.966
2.181
2.399
2.455
2.540
2.603
2.650
2.683
2.708
2.727
2.740
2.750
2.758
2.763
2.767
2.770
13%
0.885
1.668
2.361
2.974
3.517
3.998
4.423
4.799
5.132
5.426
5.687
5.918
6.122
6.302
6.462
6.604
6.729
6.840
6.938
7.025
7.283
7.330
7.496
7.634
7.675
7.687
40%
0.714
1.224
1.589
1.849
2.035
2.168
2.263
2.331
2.379
2.414
2.438
2.456
2.469
2.478
2.484
2.489
2.492
2.494
2.496
2.772 2.497
2.776 2.499
2.776 2.499
2.778
2.500
2.778
2.500
2.778
2.500
2.778
2.500
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