Lugget Corp. has one bond issue outstanding with an annual coupon of 3.6%, a face value of $1,000 and a price of $1,143.72, which matures in 10 years. The company's tax rate is 29%. What is Lugget's pre-tax cost of debt? What is the company's after-tax cost of debt?

Lugget Corp. has one bond issue outstanding with an annual coupon of 3.6%, a face value of $1,000 and a price of $1,143.72, which matures in 10 years. The company's tax rate is 29%. What is Lugget's pre-tax cost of debt? What is the company's after-tax cost of debt?

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

See similar textbooks

Similar questions

5 years ago, Barton Industries issued 25-year noncallable, semiannual bonds with a $1,000 face value and an 8% coupon, semiannual payment ($40 payment every 6 months). The bonds currently sell for $894.87. If the firm's marginal tax rate is 25%, what is the firm's after-tax cost of debt? Do not round intermediate calculations. Round your answer to two decimal places.
Suppose that LilyMac Photography expects EBIT to be approximately $ 210,000 per year for the foreseeable future, and that it has 1, 000 10-year, 9 percent annual coupon bonds outstanding. What would the appropriate tax rate be for use in the calculation of the debt component of Lily Mac's WACC?
Lugget Corp. has one bond issue outstanding with an annual coupon of 4%, a face value of $1,000 and a price of $1,179.65, which matures in 10 years. The company's tax rate is 25%. What is the company's after-tax cost of debt?
Charter Corp. has issued 1,554 debentures with a total principal value of $1,554,000. The bonds have a coupon interest rate of 9%. a. What dollar amount of interest per bond can an investor expect to receive each year from Charter? b. What is Charter's total interest expense per year associated with this bond issue? c. Assuming that Charter is in a 39% corporate tax bracket, what is the company's net after-tax interest cost associated with this bond issue?
Ernie's has 3,500 bonds outstanding with a face value of $1,000 each and a coupon rate of 8.5 percent. What is the amount of the annual interest tax shield if the tax rate is 34 percent?
Assume that CVC Corp.'s marginal tax rate is 35%, investors in CVC pay a 15% tax rate on income from equity and a 35% tax rate on interest income. CVC is equally likely to have EBIT this coming year of $20 million, $25 million, or $30 million. What is the effective tax advantage of debt if CVC has interest expenses of $8 million this coming year?
Lugget Corp. has one bond issue outstanding with an annual coupon of 3.8%, a face value of $ 1,000 and a price of $1,068.24, which matures in 10 years. The company's tax rate is 33 %. What is Lugget's pre-tax cost of debt?
Beckham Corporation has semiannual bonds outstanding with nine years to maturity that are currently priced at $894.08. If the bonds have a coupon rate of 5 percent, then what is the after- tax cost of debt for Beckham if its marginal tax rate is 27 percent? Complete the calculation as is done on Wall Street. 4.8% 2.4% 3.14% 6.5% Onone of these
Dixon Corp has 6% coupon bonds outstanding that have a remaining maturity of 12 years. These bonds pay interest semiannually, and are currently selling for $1080 per $1000 face value. If Dixon issues new debt, it plans to sell bonds with a maturity of 12 years. Estimate Dixon's marginal post-tax cost of debt. Dixon faces a marginal tax rate of 30%. 3.06% 4.15% 4.35% 3.57% 2.90%
You are analyzing the after-tax cost of debt for a firm. You know that the firm’s 12-year maturity, 13.00 percent semiannual coupon bonds are selling at a price of $1,207. These bonds are the only debt outstanding for the firm. What is the current YTM of the bonds? (to 2 decimal places) What is the after-tax cost of debt for this firm if it has a marginal tax rate of 34 percent? What is the current YTM of the bonds and after-tax cost of debt for this firm if the bonds are selling at par? (round final answer to 2 decimal places) YTM __% After-tax cost of debt ___%

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS