Ying Import has several bond issues outstanding, each making semiannual interest payments. The bonds are listed in the following table. Coupon Rate Bond Price Quote Maturity Face Value 2$ 45,000,000 40,000,000 50,000,000 65,000,000 1 4.00% 103.18 5 years 2 6.10 112.80 8 years 15.5 years 25 years 3. 5.30 107.45 4 4.90 102.75 If the corporate tax rate is 22 percent, what is the aftertax cost of the company's debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g.., 32.16.) Cost of debt %
Ying Import has several bond issues outstanding, each making semiannual interest payments. The bonds are listed in the following table. Coupon Rate Bond Price Quote Maturity Face Value 2$ 45,000,000 40,000,000 50,000,000 65,000,000 1 4.00% 103.18 5 years 2 6.10 112.80 8 years 15.5 years 25 years 3. 5.30 107.45 4 4.90 102.75 If the corporate tax rate is 22 percent, what is the aftertax cost of the company's debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g.., 32.16.) 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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Question
![Ying Import has several bond issues outstanding, each making semiannual interest
payments. The bonds are listed in the following table.
Coupon
Rate
Bond
Price Quote
Maturity
Face Value
2$
45,000,000
40,000,000
50,000,000
65,000,000
1
4.00%
103.18
5
years
6.10
112.80
8 years
15.5 years
25 years
3
5.30
107.45
4
4.90
102.75
If the corporate tax rate is 22 percent, what is the aftertax cost of the company's debt?
(Do not round intermediate calculations and enter your answer as a percent rounded
to 2 decimal places, e.g., 32.16.)
Cost of debt
%](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ff2db349d-44e2-4dc0-ad50-be44fa6802da%2F8aaa3e34-5c4a-4903-85a8-d1a55b5d8d08%2Fuu166io_processed.png&w=3840&q=75)
Transcribed Image Text:Ying Import has several bond issues outstanding, each making semiannual interest
payments. The bonds are listed in the following table.
Coupon
Rate
Bond
Price Quote
Maturity
Face Value
2$
45,000,000
40,000,000
50,000,000
65,000,000
1
4.00%
103.18
5
years
6.10
112.80
8 years
15.5 years
25 years
3
5.30
107.45
4
4.90
102.75
If the corporate tax rate is 22 percent, what is the aftertax cost of the company's debt?
(Do not round intermediate calculations and enter your answer as a percent rounded
to 2 decimal places, e.g., 32.16.)
Cost of debt
%
![Lingenburger Cheese Corporation has 6.4 million shares of common stock outstanding,
200,000 shares of 3.8 percent preferred stock outstanding, par value of $100, and
120,000 bonds with a semiannual coupon of 4.8 percent outstanding, par value $1,000
each. The common stock currently sells for $54 per share and has a beta of 1.08, the
preferred stock currently sells for $103 per share, and the bonds have 15 years to
maturity and sell for 107 percent of par. The market risk premium is 7.5 percent, T-bills
are yielding 2.4 percent, and the company's tax rate is 22 percent.
a. What is the firm's market value capital structure? (Do not round intermediate
calculations and round your answers to 4 decimal places, e.g., .1616.)
b. If the company is evaluating a new investment project that has the same risk as the
firm's typical project, what rate should the firm use to discount the project's cash
flows? (Do not round intermediate calculations and enter your answer as a percent
rounded to 2 decimal places, e.g., 32.16.)
X Answer is complete but not entirely correct.
a. Debt
0.2599
a. Equity
0.0404 X
a. Preferred
0.6995
stock
b. Discount rate
8.38
%](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ff2db349d-44e2-4dc0-ad50-be44fa6802da%2F8aaa3e34-5c4a-4903-85a8-d1a55b5d8d08%2F2z5a4i9_processed.png&w=3840&q=75)
Transcribed Image Text:Lingenburger Cheese Corporation has 6.4 million shares of common stock outstanding,
200,000 shares of 3.8 percent preferred stock outstanding, par value of $100, and
120,000 bonds with a semiannual coupon of 4.8 percent outstanding, par value $1,000
each. The common stock currently sells for $54 per share and has a beta of 1.08, the
preferred stock currently sells for $103 per share, and the bonds have 15 years to
maturity and sell for 107 percent of par. The market risk premium is 7.5 percent, T-bills
are yielding 2.4 percent, and the company's tax rate is 22 percent.
a. What is the firm's market value capital structure? (Do not round intermediate
calculations and round your answers to 4 decimal places, e.g., .1616.)
b. If the company is evaluating a new investment project that has the same risk as the
firm's typical project, what rate should the firm use to discount the project's cash
flows? (Do not round intermediate calculations and enter your answer as a percent
rounded to 2 decimal places, e.g., 32.16.)
X Answer is complete but not entirely correct.
a. Debt
0.2599
a. Equity
0.0404 X
a. Preferred
0.6995
stock
b. Discount rate
8.38
%
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