The before-tax cost of debt Water and Power Company (WPC) can borrow funds at an interest rate of 12.50% for a period of seven years. Its marginal federal-plus-state tax rate is 25%. WPC's after-tax cost of debt is 9.38% (rounded to two decimal places). At the present time, Water and Power Company (WPC) has 20-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,382.73 per bond, carry a coupon rate of 13%, and distribute annual coupon payments. The company incurs a federal-plus-state tax rate of 25%. If WPC wants to issue new debt, what would be a reasonable estimate for its after-tax cost of debt (rounded to two decimal places)? (Note: Round your YTM rate to two decimal place.) 5.31% 7.64 % is the interest rate that a firm pays on any new debt financing. 5.98% 6.64%
The before-tax cost of debt Water and Power Company (WPC) can borrow funds at an interest rate of 12.50% for a period of seven years. Its marginal federal-plus-state tax rate is 25%. WPC's after-tax cost of debt is 9.38% (rounded to two decimal places). At the present time, Water and Power Company (WPC) has 20-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,382.73 per bond, carry a coupon rate of 13%, and distribute annual coupon payments. The company incurs a federal-plus-state tax rate of 25%. If WPC wants to issue new debt, what would be a reasonable estimate for its after-tax cost of debt (rounded to two decimal places)? (Note: Round your YTM rate to two decimal place.) 5.31% 7.64 % is the interest rate that a firm pays on any new debt financing. 5.98% 6.64%
Chapter12: The Cost Of Capital
Section: Chapter Questions
Problem 2P
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Transcribed Image Text:The before-tax cost of debt
Water and Power Company (WPC) can borrow funds at an interest rate of 12.50% for a period of seven years. Its marginal federal-plus-state tax rate
is 25%. WPC's after-tax cost of debt is 9.38% (rounded to two decimal places).
At the present time, Water and Power Company (WPC) has 20-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds
have a current market price of $1,382.73 per bond, carry a coupon rate of 13%, and distribute annual coupon payments. The company incurs a
federal-plus-state tax rate of 25%. If WPC wants to issue new debt, what would be a reasonable estimate for its after-tax cost of debt (rounded to two
decimal places)? (Note: Round your YTM rate to two decimal place.) :
5.31%
7.64%
is the interest rate that a firm pays on any new debt financing.
5.98%
6.64%
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