l Food Supplies Corporation sold an issue of 10-year bonds. The bonds sold at a $980 price each. The issuance costs is $4 for each bond. That is, after issuance costs, Seoul Food Supplies received $976 each. The face value of the bond is $1,000. The coupon rate is 8% and paid annually. What is the after-tax cost of debt for these bon

l Food Supplies Corporation sold an issue of 10-year bonds. The bonds sold at a $980 price each. The issuance costs is $4 for each bond. That is, after issuance costs, Seoul Food Supplies received $976 each. The face value of the bond is $1,000. The coupon rate is 8% and paid annually. What is the after-tax cost of debt for these bon

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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(Cost of debt) Carraway Seed Company is issuing a $1,000 par value bond that pays 11 percent annual interest and matures in 6 years. Investors are willing to pay $955 for the bond. Flotation costs will be 11 percent of market value. The company is in a 38 percent tax bracket. What will be the firm's after-tax cost of debt on the bond? The firm's after-tax cost of debt on the bond will be ☐ %. (Round to two decimal places.)
Perpetualcold Refrigeration Company (PRC) can borrow funds at an interest rate of 11.10% for a period of five years. Its marginal federal-plus-state tax rate is 35%. PRC'S after-tax cost of debt is 7.22% (rounded to two decimal places). At the present time, Perpetualcold Refrigeration Company (PRC) has 10-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,495.56 per bond, carry a coupon rate of 10%, and distribute annual coupon payments. The company incurs a federal-plus-state tax rate of 35%. If PRC 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.) 3.06% 2.30% 2.55% 2.04%
Sony bonds were issued 8 years ago with a coupon rate of 9%. The bond has 2 years left to maturity and is currently selling for $880. The firm typically falls under a 40% tax rate. Based on this informaiton, what is their after-tax cost of debt? Assume coupon payments are made semiannually.
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