Palmer Company has $5,000,000 of 15-year maturity bondsoutstanding. Each bond has a maturity value of $1,000, anannual coupon of 12.0%. The bonds can be called at anytime with a premium of $50 per bond. If the bonds arecalled, the company must pay flotation costs of $10 per newrefunding bond. Ignore tax considerations-assume that thefirm's tax rate is zero.The company's decision of whether to call the bondsdepends critically on the current interest rate on newlyissued bonds. What is the breakeven interest rate, the ratebelow which it would be profitable to call in the bonds?A) 9.57%B) 10.07%C) 10.60%D) 11.16%E) 11.72%

Internal rate of return refers to the minimum return to be earned by the investors in estimating the…

Answered: Palmer Company has $5,000,000 of…

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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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?
Ying Import has several bond issues outstanding, each making semiannual interest payments. The bonds are listed in the table bel If the corporate tax rate is 22 percent, what is the aftertax cost of the company's debt? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. Aftertax cost of debt
5 years ago, Barton Industries issued 25-year nuncallable, semiamual bonds with $1,000 face value and a 5%. coupan, semianual payment ($25 payment every 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? % ildes 1 the a AG ect that
Badger Corp. has an issue of 6% bonds outstanding with 6 months left to maturity. The bonds are currently priced at $1,008.11, and pay interest semiannually. The firm's marginal tax rate is 40%. The estimated risk premium between the company's stock and bond returns is 5%. The firm's expects to maintain a capital structure with 40% debt and 60% equity going forward. The company's W.A.C.C. is %. Margin of error for correct responses: +/-.10(%) Rounding and Formatting instructions: Do not enter dollar signs, percent signs, commas, X, or any words in your response. Do not round any intermediate work, but round your "final response to 2 decimal places (example: if your answer is 12.3456, 12.3456%, or $12.3456, you should enter 12.35).
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?
Jones Cricket Institute issued a 30-year, 8 percent semi-annual bond 3 year ago. The bond currently sells for 93 percent of its face value. The Company’s tax rate is 35%. a. What is the pre-taxed cost of debt? b. What is the after-tax cost of debt? c. Which is more relevant, the pre-tax or the after- tax cost of debt? Why? In the question above, suppose the book value of the debt issues is $60 million. In addition, the company has a second debt issue on the market, a zero coupon bond with 10 years to mature. The book value of this issue is $35 million and the bond sell for 57 percent of par. a. What is the company’s total book value of debt? b. The total market value? c. What is your best estimate of the after-tax cost of debt now?
Maddux Corporation has an EBIT of $835,000 per year that is expected to continue in perpetuity. The unlevered cost of equity for the company is 16 percent and the corporate tax rate is 21 percent. The company also has a perpetual bond issue outstanding with a market value of $2.1 million. What is the value of the company? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89) Value of the company
To help finance a major expansion, a company sold a noncallable bond several years ago that now has 14 years to maturity. This bond has a 14.00% annual coupon, paid semiannually, sells at a price of $1,400, and has a par value of $1,000. If the firm's tax rate is 21%, what is the component cost of debt for use in the WACC calculation? Do not round your intermediate calculations. 8.94% 7.06% 3.53%
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?
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Tatum can borrow at 6.85 percent. The company currently has no debtand the cost of equity is 11.25 percent. The current value of the firm is $640,000. The corporate tax rate is 24 percent. What will the value be if the company borrows $355,000 and uses the proceeds to repurchase shares?

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