Problem 14-7 Calculating Cost of Debt (LO3) Pearce's Cricket Farm issued a 30-year, 9% semiannual bond 5 years ago. The bond currently sells for 93% of its face value. The company's tax rate is 20%. Assume the par value of the bond is $1,000. a. What is the pre-tax cost of debt? (Do not round intermediate calculations. Round the final answer to 3 decimal places.) Pre-tax cost of debt 5.995 % b. What is the after-tax cost of debt? (Do not round intermediate calculations. Round the final answer to 3 decimal places.) After-tax cost of debt 4.796 % c. Which is more relevant, the pre-tax or the after-tax cost of debt? O After-tax cost of debt Pre-tax cost of debt

Problem 14-7 Calculating Cost of Debt (LO3) Pearce's Cricket Farm issued a 30-year, 9% semiannual bond 5 years ago. The bond currently sells for 93% of its face value. The company's tax rate is 20%. Assume the par value of the bond is $1,000. a. What is the pre-tax cost of debt? (Do not round intermediate calculations. Round the final answer to 3 decimal places.) Pre-tax cost of debt 5.995 % b. What is the after-tax cost of debt? (Do not round intermediate calculations. Round the final answer to 3 decimal places.) After-tax cost of debt 4.796 % c. Which is more relevant, the pre-tax or the after-tax cost of debt? O After-tax cost of debt Pre-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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QUESTION 38 ABC Inc. plans to issue $500,000 face value bonds with a stated interest rate of 10% and market interest rate of 12%. They will mature in 10 years. Interest will be paid semiannually. At the date of issuance, compute the present value (bond issue price) of the future cash flows. Following are appropriate factors from tables: Table % / n Present Value of $1 Present Value of ordinary annuity of $1 10%/10 .38554 6.14457 12%/10 .32197 5.65022 5%/20 .37689 12.46221 6%/20 .31180 11.46992 $286,748 $155,900 $442,648 $467,455.25
Problem 10-33 (Algo) A newly issued 20-year-maturity, zero-coupon bond is issued with a yield to maturity of 7.1% and face value $1,000. Required: Find the imputed interest income in the first, second, and last years of the bond's life. (Do not round intermediate calculations. Round your answers to 2 decimal places.) First year Second year Last year Imputed Interest $ 17.90 66.50
Problem LU – 3 Today Arrow Company issued bonds that will mature to a value of $120,000 in 20 years. Arrow's controller is planning to set up a sinking fund. Interest rates are 6% compounded semiannually. What will Arrow Company have to set aside to meet its obligation in 10 years?
Time Value of Money and Early Extinguishment of DebtE13B. Infosphere, Inc., has a $350,000, 4 percent bond issue that was issued a number of years ago at face value. There are now 10 years left on the bond issue, and themarket interest rate is 8 percent. Interest is paid semiannually. The company purchasesthe bonds on the open market at the calculated current market value and retires thebonds.1. Using present value tables, calculate the current market value of the bond issue.2. Is there a gain or loss on retirement of the bonds, and if so, how much is it?
9.27 Debt Valuation: Zero-Coupon Debentures. At the beginning of the year, Park Inc. issued $150 million (maturity value) of 10-year, zero-coupon debentures, at a time when the yield rate was four percent annually. The Park, Inc. bonds would be subject to semiannual compounding. Required1. Calculate the proceeds to be received by Park Inc. when the bonds are sold. 2. Calculate the cost to repurchase and retire the bonds after five years assuming that the market yield rate at that time is five percent annually. Is the early retirement of debt a good decision in this set of circumstances? What factors did you consider in reaching your decision? 3. Under what circumstances would a company consider issuing zero-coupon debentures instead of regular interest-bearing debentures?
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Problem 14-8 Calculating Cost of Debt (LO3) Pearce's Cricket Farm issued a 15-year, 10% semiannual bond 4 years ago. The bond currently sells for 91% of its face value. The company's tax rate is 38%. Suppose the book value of the debt issue is $60 million, In addition, the company has a second debt issue on the market, a zero coupon bond with 11 years left to maturity, the book value of this issue is $35 milion and the bonds sell for 51%of par. Assume the par value of the bond is $1.000. What is the company's total book value of debt? (Enter the answer In dollars. Omit $ sign in your response.) Total book value $ 95000000 What is the company's total market value of debt? (Enter the enswer In dollers. Omit S sign In your response.) Total market value $ 85200000 What is your best estimate of the after-tax cost of debt? (Do not round Intermedilate calculetions. Enter your answer es a percentege rounded to 2 decimal places.) Cost of debt
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Question Z Megan's Automotive Repair has 24,600 bonds outstanding, . The bonds pay a 9.80 percent semiannual coupon, mature in 12 years, and currently sell at 97 percent of par. Calculate the company's required return on debt.
Problem 7-19 A corporation issues a debt instrument such as a bond that promises to pay you annually $80 for four years and $1,000 after four years. What is the maximum amount you would pay for this debt instrument if you wanted to earn 8 percent? Use Appendix B and Appendix D to answer the question. Round your answer to the nearest dollar.$

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