The (AFTER-TAX COST OF DEBT / BEFORE-TAX COST OF DEBT) is the interest rate that a firm pays on any new debt financing. Omni Consumer Products Company (OCP) can borrow funds at an interest rate of 9.70% for a period of eight years. Its marginal federal-plus-state tax rate is 30%. OCP’s after-tax cost of debt is (7.81 / 6.79 / 9.70 / 6.45) (rounded to two decimal places). At the present time, Omni Consumer Products Company (OCP) has 5-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,229.24 per bond, carry a coupon rate of 10%, and distribute annual coupon payments. The company incurs a federal-plus-state tax rate of 30%. If OCP wants to issue new debt, what would be a reasonable estimate for its after-tax cost of debt (rounded to two decimal places)? _____
The (AFTER-TAX COST OF DEBT / BEFORE-TAX COST OF DEBT) is the interest rate that a firm pays on any new debt financing. Omni Consumer Products Company (OCP) can borrow funds at an interest rate of 9.70% for a period of eight years. Its marginal federal-plus-state tax rate is 30%. OCP’s after-tax cost of debt is (7.81 / 6.79 / 9.70 / 6.45) (rounded to two decimal places). At the present time, Omni Consumer Products Company (OCP) has 5-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,229.24 per bond, carry a coupon rate of 10%, and distribute annual coupon payments. The company incurs a federal-plus-state tax rate of 30%. If OCP wants to issue new debt, what would be a reasonable estimate for its after-tax cost of debt (rounded to two decimal places)? _____
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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The (AFTER-TAX COST OF DEBT / BEFORE-TAX COST OF DEBT) is the interest rate that a firm pays on any new debt financing.
Omni Consumer Products Company (OCP) can borrow funds at an interest rate of 9.70% for a period of eight years. Its marginal federal-plus-state tax rate is 30%. OCP’s after-tax cost of debt is (7.81 / 6.79 / 9.70 / 6.45) (rounded to two decimal places).
At the present time, Omni Consumer Products Company (OCP) has 5-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,229.24 per bond, carry a coupon rate of 10%, and distribute annual coupon payments. The company incurs a federal-plus-state tax rate of 30%. If OCP wants to issue new debt, what would be a reasonable estimate for its after-tax cost of debt (rounded to two decimal places)? _____
Transcribed Image Text:The
is the interest rate that a firm pays on any new debt financing.
Omni Consumer Products Company (OCP) can borrow funds at an interest rate of 9.70% for a period of eight years. Its marginal federal-plus-state tax
rate is 30%. OCP's after-tax cost of debt is
(rounded to two decimal places).
At the present time, Omni Consumer Products Company (OCP) has 5-year noncallable bonds with a face value of $1,000 that are outstanding. These
bonds have a current market price of $1,229.24 per bond, carry a coupon rate of 10%, and distribute annual coupon payments. The company incurs a
federal-plus-state tax rate of 30%. If OCP wants to issue new debt, what would be a reasonable estimate for its after-tax cost of debt (rounded to two
decimal places)?
3.98%
3.32%
2.66%
3.82%
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