The Goodsmith Charitable Foundation, which is tax-exempt, issued debt last year at 8 percent to help finance a new playground facility in Los Angeles. This year the cost of debt is 30 percent higher; that is, firms that paid 10 percent for debt last year will be paying 13.00 percent this year. a. If the Goodsmith Charitable Foundation borrowed money this year, what would the aftertax cost of debt be, based on their cost last year and the 30 percent increase? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)
The Goodsmith Charitable Foundation, which is tax-exempt, issued debt last year at 8 percent to help finance a new playground facility in Los Angeles. This year the cost of debt is 30 percent higher; that is, firms that paid 10 percent for debt last year will be paying 13.00 percent this year. a. If the Goodsmith Charitable Foundation borrowed money this year, what would the aftertax cost of debt be, based on their cost last year and the 30 percent increase? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 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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Answer a and b please
Transcribed Image Text:The Goodsmith Charitable Foundation, which is tax-exempt, issued debt last year at 8 percent to help finance a new playground facility
in Los Angeles. This year the cost of debt is 30 percent higher; that is, firms that paid 10 percent for debt last year will be paying 13.00
percent this year.
a. If the Goodsmith Charitable Foundation borrowed money this year, what would the aftertax cost of debt be, based on their cost last
year and the 30 percent increase? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal
places.)
Aftertax cost of debt
%
b. If the receipts of the foundation were found to be taxable by the IRS (at a rate of 30 percent because of involvement in political
activities), what would the aftertax cost of debt be? (Do not round intermediate calculations. Input your answer as a percent
rounded to 2 decimal places.)
Aftertax cost of debt
%
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