Luther Industries has 25 million shares of common stock outstanding, trading at $18 per share. In addition, Luther has bonds with a total face value of $150 million. The bonds have 20 years to maturity, semi-annual coupon payments, an annual coupon rate of 7.5%, and each bond has a market price of $570. If Luther has a corporate tax rate of 21%, what is their effective (or "after-tax") cost of debt?
Luther Industries has 25 million shares of common stock outstanding, trading at $18 per share. In addition, Luther has bonds with a total face value of $150 million. The bonds have 20 years to maturity, semi-annual coupon payments, an annual coupon rate of 7.5%, and each bond has a market price of $570. If Luther has a corporate tax rate of 21%, what is their effective (or "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
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Luther Industries has 25 million shares of common stock outstanding, trading at $18 per share. In addition, Luther has bonds with a total face value of $150 million. The bonds have 20 years to maturity, semi-annual coupon payments, an annual coupon rate of 7.5%, and each bond has a market price of $570. If Luther has a corporate tax rate of 21%, what is their effective (or "after-tax") cost of debt?
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