Wednesday, May 4, 2013, an 8% bond issued by XYZ has 20 years until maturity and closed at $950. If the bond has a face value of $1000 and pays interest semi-annually and XYZ has a marginal tax rate of 35%, what is XYZ’s a after- tax cost of debt?

Wednesday, May 4, 2013, an 8% bond issued by XYZ has 20 years until maturity and closed at $950. If the bond has a face value of $1000 and pays interest semi-annually and XYZ has a marginal tax rate of 35%, what is XYZ’s a after- 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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Rockingham Motors issued a 30-year, 8 percent semiannual bond 3 years ago. The bond currently sells for 103.1 percent of its face value. The company's tax rate is 21 percent. What is the aftertax cost of debt? Multiple Choice O 6.10% 2.72% О О О 5.69% 5.10% 5.99%
(Cost of debt) Temple-Midland, Inc. is issuing a $1,000 par value bond that pays 7.7 percent annual interest and matures in 15 years. Investors are willing to pay $949 for the bond and Temple faces a tax rate of 21 percent. What is Temple's after-tax cost of debt on the bond? The after-tax cost of debt is%. (Round to two decimal places.)
Lenovo issued 30-year, 7.7 percent semiannual bonds 6 years ago. The bonds sell presently at 101 percent of face value. What is the company's after-tax cost of debt if the tax rate is 35 percent?
Jones Cricket Institute issued a 30 year, 8 percent semi-annual bond 3 year ago. The bond currently sells for 93 percent of its face value. The Company’s tax rate is 35%. a) What is the pre-taxed cost of debt? Answer % b) What is the after tax cost of debt? Answer % c) Which is more relevant, the pre-tax or the after- tax cost of debt? Why? Answer In the question above, suppose the book value of the debt issues is $60 million. In addition, the company has a second debt issue on the market, a zero coupon bond with 10 years to mature. The book value of this issue is $35 million and the bond sell for 57 percent of par. What is the company’s total book value of debt? $ Answer The total market value? $ Answer What is your best estimate of the after-tax cost of debt now? Answer %
Beckham Corporation has semiannual bonds outstanding with seven years to maturity that are currently priced at $815. If the bonds have a coupon rate of 7 percent, then what is the after-tax cost of debt for Beckham if its marginal tax rate is 27 percent? Complete the calculation using the effective annual yield (EAY) for the bond. Round to 2 decimals. 11.13% 10.30% 5.42% 8.13% O 7.06%
Jiminy's Cricket Farm issued a 30-year, 7 percent semiannual bond 4 years ago. The bond currently sells for 95 percent of its face value. The company's tax rate is 25 percent. a. What is the pretax cost of debt? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b. What is the aftertax cost of debt? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. a. Pretax cost of debt b. Aftertax cost of debt % % c. Which is more relevant, the pretax or the aftertax cost of debt? O Aftertax cost of debt O Pretax cost of debt
The June Bug has a $270,000 bond issue outstanding that matures in 22 years. These bonds have a 7.6 percent yield to maturity. The tax rate is 39 percent. What is the amount of the annual interest tax shield?
Jiminy's Cricket Farm issued a bond with 25 years to maturity and a semiannual coupon rate of 4 percent 3 years ago. The bond currently sells for 108 percent of its face value. The company's tax rate is 22 percent. a. What is the pretax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the aftertax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Pretax cost of debt b. Aftertax cost of debt c. Which is more relevant, the pretax or the aftertax cost of debt? Aftertax cost of debt % % Pretax cost of debt
(Cost of debt) Temple-Midland, Inc. is issuing a $1,000 par value bond that pays 8.2 percent annual interest and matures in 15 years. Investors are willing to pay $946 for the bond and Temple faces a tax rate of 35 percent. What is Temple's after-tax cost of debt on the bond? The after-tax cost of debt is%. (Round to two decimal places.)
The Monroe Co. is going to issue a twenty-year 8% (annual) coupon bond making semi-annual coupon payments. The bond will be priced at $907.99 per If the firm’s tax rate is 39%, what is their after-tax cost of debt as a percent to two places.

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