Incorporated's currently outstanding 7% coupon bonds have a yield to maturity of 4.8%. LL believes it could issue new bonds at par that would provide a similar yield to maturity. If its marginal tax rate is 25%, what is LL's after-tax cost of debt? Round your answer to two decimal places. %

Incorporated's currently outstanding 7% coupon bonds have a yield to maturity of 4.8%. LL believes it could issue new bonds at par that would provide a similar yield to maturity. If its marginal tax rate is 25%, what is LL's after-tax cost of debt? Round your answer to two decimal places. %

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter11: Determining The Cost Of Capital

Section: Chapter Questions

Problem 2P

See similar textbooks

Related questions

Q: Cost of debt using both methods (YTM and the approximation formula) Currently, Warren Industries can…

A: a. Calculate the net proceeds from the sale of the bond as follows: Net proceeds = Current price -…

Q: The Holmes Company's currently outstanding bonds have an 8% coupon and a 14% yield to maturity.…

A: In the given case, we have provided the yield to maturity and the marginal tax rate.So, the yield to…

Q: What is the cost of debt for Kenny Enterprises if the bond sells at $938.10? % (Round to two decimal…

A: Answer A. $938.10 Given Fv= 1000 Pv=938.10 Coupon rate = 10.2% Pmt= 10.2×1000/2 = 102/2 = 51 N=…

Q: Cost of debt using both methods (YTM and the approximation formula) Currently, Warren Industries can…

A: Given:

Q: Cost of debt with fees. Kenny Enterprises will issue a bond with a par value of $1,000, a maturity…

A: Particulars Par value (FV) $1,000 $1,000 $1,000 $1,000 Coupon rate 10.80% 10.80% 10.80%…

Q: The coupon rate on an issue of debt is 9%. The yield to maturity on this issue is 10%. The corporate…

A: Yield to Maturity is the total return anticipated on a bond if it is held until it matures. It takes…

Q: Cost of debt with fees. Kenny Enterprises will issue a bond with a par value of $1,000, a maturity…

A: To calculate the cost of debt for Kenny Enterprises, we need to use the following formula:Cost of…

Q: LL Incorporated's currently outstanding 7% coupon bonds have a yield to maturity of 4.6%. LL…

A: After tax cost of debt is is the cost of debt that is adjusted for the tax savings on the interest.…

Q: The Holmes Company's currently outstanding bonds have a 9% coupon and an 11% yield to maturity.…

A: The effective interest rate that a business pays on its debt commitments is known as the cost of…

Q: Cost of debt using both methods (YTM and the approximation formula) Currently, Warren Industries can…

A: Given:

Q: Cost of debt using both methods (YTM and the approximation formula) Currently, Warren Industries can…

A: Part a. Calculate the net proceeds from the sale of the bond as follows:

Q: What is the yield to maturity on Fox Inc.'s bonds if its after-tax cost of debt is 9% and its tax…

A: After Tax Cost of Debt is calculated as Yield to maturity minus tax shield.

Q: The Holmes Company's currently outstanding bonds have a 7% coupon and a 13% yield to maturity.…

A: After tax cost of debt = Before tax cost of debt * (1-tax rate)

Q: Cost of debt with fees. Kenny Enterprises will issue a bond with a par value of $1,000, a maturity…

A: Cost of debt is the yield to maturity of the bond when held till maturity.Cost of debt at each of…

Q: A company's 7% coupon rate, semiannual payment, $1,000 par value bond that matures in 25 years sells…

A: The after-tax cost of debt is the effective cost a company incurs on its debt financing after…

Q: Cost of debt using both methods (YIM and the approximation formula) Currently, Warren Industries can…

A: Yield to maturity refers to the interest rate that is being charged on the amount of a bond for a…

Q: After-Tax Cost of Debt LL Incorporated's currently outstanding 11% coupon bonds have a yield to…

A: Pre tax cost of debt = YTM of new bonds = 8.3% Tax rate = 25%

Q: If a 5 year annual bond with a 6% coupon rate, currently priced at $988 and par value is $1000, what…

A: Borrowings are the liability of the company which is used to finance the requirement of the funds.…

Q: Cost of debt using both methods (YTM and the approximation formula) Currently, Warren Industries can…

A: The net proceed refer to the actual worth that will be received by the seller of the bond after…

Q: Cost of debt. Kenny Enterprises has just issued a bond with a par value of $1,000, a maturity of…

A: The cost of debt of bonds issued refers to the rate of return that the issuer must pay to…

Q: Cost of debt with fees. Kenny Enterprises will issue a bond with a par value of$1,000, a maturity of…

A: Par Value $ 1,000.00Maturity Period, Years20Coupon rate8%Compounding period2Bank Charges per bond $…

Q: DEBT: The firm can sell a 12‑year, 7%, P1,000 par value share for Php 960. A flotation cost of 2%…

A: Par value (F) = P 1000 Coupon rate = 7% Coupon amount (C) = 1000*0.07 = P 70 Years to maturity (N) =…

Q: Cost of debt with fees. Kenny Enterprises will issue a bond with a par value of $1,000, a maturity…

A: Cost of debt is the yield to maturity of the bond when held till maturity.Cost of debt at each of…

Q: LL Incorporated's currently outstanding 8% coupon bonds have a yield to maturity of 5.8%. LL…

A: Given information: Coupon rate is 8% on bonds Yield to maturity is 5.80% Marginal tax rate is 25%

Q: What is the firm's after-tax component cost of debt for purposes of calculating the WACC? (

A: Cost of debt refers to the net amount of cost (expense) beard by an entity in order to raise funds…

Q: LL Incorporated's currently outstanding 8% coupon bonds have a yield to maturity of 5.7%. LL…

A: Debt is an obligation for the company for which an interest has to be paid by the company.

Q: The coupon rate on an issue of debt is 9%. The yield to maturity on this issue is 12%. The corporate…

A: Here,Coupon rate is 9%Yield to maturity is 12%Tax rate is 33%

Q: LL Incorporated's currently outstanding 10% coupon bonds have a yield to maturity of 7.5%. LL…

A: We have to use the following formula to calculate the after-tax cost of debt: After-tax cost of debt…

Q: The yield to maturity is 10%. The.corporate tax rate is 31%. What would be the approximate after-tax…

A: Given Information Yield to maturity =10% Corporate Tax Rate =31%

Q: Calhoun Company's pre-tax cost of debt if the firm has outstanding bonds with par value of $1,000, a…

A: Compound = semiannual = 2 Face value = fv = $1000 Coupon rate = 8 / 2 = 4% Time = nper = 20 * 2 = 40…

Q: LL Incorporated's currently outstanding 10% coupon bonds have a yield to maturity of 7.8%. LL…

A: Yield to maturity(YTM) is the rate of return that a bondholder will get if received all promised…

Q: Inventive Response has bonds outstanding that mature in 8.5 years, have a 4 percent coupon, and pay…

A: Maturity time (n) = 8.5 years. Coupon rate = 4% Face value (FV) = $1,000 Present market price (PV) =…

Question

After-Tax Cost of Debt

LL Incorporated's currently outstanding 7% coupon bonds have a yield to maturity of 4.8%. LL believes it could issue new bonds at par that would provide a similar yield to maturity. If its marginal tax rate is 25%, what is LL's after-tax cost of debt? Round your answer to two decimal places.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2 Calculation of cost of debt after tax

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Similar questions

After-Tax Cost of Debt LL Incorporated's currently outstanding 7% coupon bonds have a yield to maturity of 4.6%. LL believes it could issue new bonds at par that would provide a similar yield to maturity. If its marginal tax rate is 25%, what is LL's after-tax cost of debt? Round your answer to two decimal places.
The Holmes Company's currently outstanding bonds have an 8% coupon and a 14% yield to maturity. Holmes believes it could issue new bonds at par that would provide a similar yield to maturity. If its marginal tax rate is 25%, what is Holmes' after-tax cost of debt? Round your answer to two decimal places. ___%
LL Incorporated's currently outstanding 10% coupon bonds have a yield to maturity of 7.5%. LL believes it could issue new bonds at par that would provide a similar yield to maturity. If its marginal tax rate is 25%, what is LL's after-tax cost of debt? Round your answer to two decimal places. ________ %
Ladder Works has debt outstanding with a coupon rate of 6 percent and a yield to maturity of 6.8 percent. What is the aftertax cost of debt if the tax rate is 21 percent? Assume all interest is tax deductible. 5.62% 5.82% 5.37% 4.86%
The coupon rate on an issue of debt is 9%. The yield to maturity on this issue is 10%. The corporate tax rate is 35%. What would be the approximate after-tax cost of debt for a new issue of bonds? (Round your answer to decimal places.)
What is the after tax cost of debt if the company's bond with a coupon rate of 9% is selling above par at $1050,and the bond will mature in 19 years. The firm's tax bracket is 30%. (L1).
The outstanding debt of Berstin Corp. has ten years to maturity, a current yield of 6%, and a price of $80. What is the pretax cost of debt if the tax rate is 30%. Note: The current yield of a bond is its annual coupon divided by its price. A. 4.65% B. 6% OC. 6.2% OD. 7.75%
The Holmes Company's currently outstanding bonds have a 9% coupon and a 14% yield to maturity. Holmes believes it could issue new bonds at par that would provide a similar yield to maturity. If its marginal tax rate is 35%, what is Holmes's after-tax cost of debt? Round your answer to two decimal places.
Calhoun Company's pre-tax cost of debt if the firm has outstanding bonds with par value of $1,000, a coupon rate of 8%, semi-annual coupon payments, 20 years remaining until maturity, and a market price of $1,058? Enter your answer as an annualized rate in decimal format, and show four decimal places. For example, if your answer is 5.1%, enter .0510.
LL Incorporated’s currently outstanding 7 percent coupon bonds have a yield to maturity of 6 percent. LL believes it could sell new bonds that would provide a similar yield to maturity. If its marginal tax rate is 34 percent, what is LL’s after-tax cost of debt? Express your answer in percentage (without the % sign) and round it to two decimal places.
Cost of debt with fees. Kenny Enterprises will issue a bond with a par value of $1,000, a maturity of twenty years, and a coupon rate of 10.8% with semiannual payments, and will use an investment bank that charges $30 per bond for its services. What is the cost of debt for Kenny Enterprises at the following market prices? a. $931.44 b. $1,013.16 c. $1,102.27 d. $1,152.27 ..... a. What is the cost of debt for Kenny Enterprises at a market price of $931.44? |% (Round to two decimal places.)
Cost of debt with fees. Kenny Enterprises will issue a bond with a par value of $1,000, a maturity of twenty years, and a coupon rate of 11.2% with semiannual payments, and will use an investment bank that charges $30 per bond for its services. What is the cost of debt for Kenny Enterprises at the following market prices? a. $979.18 b. $1,009.76 c. $1,111.03 d. $1,147.97 a. What is the cost of debt for Kenny Enterprises at a market price of $979.18? ☐ % (Round to two decimal places.)