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Russell Container Corporation has a $1,000 par value bond outstanding with 30 years to maturity. The bond carries an annual interest payment of $107 and is currently selling for $820 per bond. Russell Corporation is in a 30 percent tax bracket. The firm wishes to kno what the aftertax cost of a new bond issue is likely to be. The yield to maturity on the new issue will be the same as the yield to maturity on the old issue because the risk and maturity date will be similar. a. Compute the yield to maturity on the old issue and use this as the yield for the new issue. Note: Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places. Yield on new issue 2 decimal places required. % b. Make the appropriate tax adjustment to determine the aftertax cost of debt. Note: Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places. Aftertax cost of debt %

Russell Container Corporation has a $1,000 par value bond outstanding with 30 years to maturity. The bond carries an annual interest payment of $107 and is currently selling for $820 per bond. Russell Corporation is in a 30 percent tax bracket. The firm wishes to kno what the aftertax cost of a new bond issue is likely to be. The yield to maturity on the new issue will be the same as the yield to maturity on the old issue because the risk and maturity date will be similar. a. Compute the yield to maturity on the old issue and use this as the yield for the new issue. Note: Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places. Yield on new issue 2 decimal places required. % b. Make the appropriate tax adjustment to determine the aftertax cost of debt. Note: Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places. Aftertax cost of debt %

Essentials Of Investments
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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Russell Container Corporation has a $1,000 par value bond outstanding with 30 years to maturity. The bond carries an annual interest payment of $107 and is currently selling for $820 per bond. Russell Corporation is in a 30 percent tax bracket. The firm wishes to kno what the aftertax cost of a new bond issue is likely to be. The yield to maturity on the new issue will be the same as the yield to maturity on the old issue because the risk and maturity date will be similar. a. Compute the yield to maturity on the old issue and use this as the yield for the new issue. Note: Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places. Yield on new issue 2 decimal places required. % b. Make the appropriate tax adjustment to determine the aftertax cost of debt. Note: Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places. Aftertax cost of debt %
Transcribed Image Text:Russell Container Corporation has a $1,000 par value bond outstanding with 30 years to maturity. The bond carries an annual interest payment of $107 and is currently selling for $820 per bond. Russell Corporation is in a 30 percent tax bracket. The firm wishes to kno what the aftertax cost of a new bond issue is likely to be. The yield to maturity on the new issue will be the same as the yield to maturity on the old issue because the risk and maturity date will be similar. a. Compute the yield to maturity on the old issue and use this as the yield for the new issue. Note: Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places. Yield on new issue 2 decimal places required. % b. Make the appropriate tax adjustment to determine the aftertax cost of debt. Note: Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places. Aftertax cost of debt %
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