Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN: 9781337395083
Author: Eugene F. Brigham, Phillip R. Daves
Publisher: Cengage Learning
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Chapter 11, Problem 1P
After-Tax Cost of Debt
Calculate the after-tax cost of debt under each of the following conditions:
- a. rd of 13%, tax rate of 0%
- b. rd of 13%, tax rate of 20%
- c. rd of 13%, tax rate of 35%
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Calculate the after-tax cost of debt under each of the following conditions:(a) Interest rate, 12%; tax rate, 25%.(b) Interest rate, 14%; tax rate,34%.(c) Interest rate, 15%; tax rate,40%.
If the cost of debt for Oman cement is 8.15% (effective rate) and its tax rate is 24% then what is the after tax cost of debt?
Select one:
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Calculate the aftertax cost of debt under each of the following conditions. (Do not round
intermediate calculations. Round the final answers to 2 decimal places.) Yield Corporate tax rate Cost
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Chapter 11 Solutions
Intermediate Financial Management (MindTap Course List)
Ch. 11 - Define each of the following terms:
Weighted...Ch. 11 - Prob. 2QCh. 11 - Prob. 3QCh. 11 - Distinguish between beta (i.e., market) risk,...Ch. 11 - Suppose a firm estimates its overall cost of...Ch. 11 - 11-1 After-Tax Cost of Debt
Calculate the...Ch. 11 - Prob. 2PCh. 11 - Cost of Preferred Stock
Duggins Veterinary...Ch. 11 - Prob. 4PCh. 11 - Prob. 5P
Ch. 11 - Prob. 6PCh. 11 - Prob. 7PCh. 11 - Prob. 8PCh. 11 - Bond Yield and After-Tax Cost of Debt A companys...Ch. 11 - Prob. 10PCh. 11 - Prob. 11PCh. 11 - Calculation of gL and EPS Spencer Suppliess stock...Ch. 11 - The Cost of Equity and Flotation Costs
Messman...Ch. 11 - Prob. 14PCh. 11 - WACC Estimation
On January 1, the total market...Ch. 11 - Prob. 16PCh. 11 - During the last few years, Jana Industries has...Ch. 11 - What is the market interest rate on Jana’s debt,...Ch. 11 - Prob. 3MCCh. 11 - Prob. 4MCCh. 11 - Prob. 5MCCh. 11 - Prob. 6MCCh. 11 - Prob. 7MCCh. 11 - Prob. 8MCCh. 11 - Prob. 9MCCh. 11 - Prob. 10MCCh. 11 - What procedures can be used to estimate the...Ch. 11 - Prob. 12MCCh. 11 - Prob. 13MCCh. 11 - Prob. 14MCCh. 11 - What four common mistakes in estimating the WACC...
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- Cost of Debt Financing Stinson Corporations cost of debt financing is 6%. Its tax rate is 30%. Required: Calculate the after-tax interest rate. (Vote: Round answer to one decimal place.)arrow_forwardMULTIPLE CHOICE Calculate the after-tax cost of debt under each of the following cases: (a) the interest rate is 10 percent, and the tax rate is 40 percent; (b) the interest rate is 11 percent, and the tax rate is 50 percent? A. (a)10% and (b)4.5%B. (a)5% and (b)5.5%C. (a)12% and (b)6.5%D. (a)6% and (b)5.5%E. None of the abovearrow_forwardTwo questions: 1) Why 25% tax rate in statement not considered for incorporation into cost of debt? i.e. kd x (1 - tax%)2) Does it influence the calculations that the debt rate (kd) is transe at 115% at par?Please respond as soon as possible ASAParrow_forward
- Company issuing three year debt, and has come up with the following estimates of the value of the interest tax shield and the probability of distress for different levels of debt: PV of interest tax shield ($MM) $ Probability of Financial Distress . $0 0% $ $25 0.4 $ 0% AMOUNT OF DEBT (SMM) $60 1.1 $ $70 1.2 $ 3% 5% $50 0.9 $ 1% $80 1.4 $ 8% $90 1.6 $ 20% $100 1.8 33% If in the event of distress, the present value of distress costs is equal to $15 million, then the optimal level of debt for company: A. $25 million B. $50 million C. $60 million D. $70 millionarrow_forwardDavid Co has in issue 4% irredeemable debt quoted at $155 (ex-interest). The corporation tax rate is 35%.Required:-Calculate the return required by the debt providers and the cost ofdebt to David Co.arrow_forwardThe debt is amortized by the periodic payment shown. Compute (a) the number of payments required to amortize the debt; (b) the outstanding principal at the time indicated. Debt Principal Debt Payment Payment Interval Interest Rate Conversion Period Outstanding Principal After: $13,000 $1,493 6 months 6% monthly 8th paymentarrow_forward
- The debt is amortized by the periodic payment shown Compute (a) the number of payments required to amortize the debt, (b) the outstanding principal at the time indicated Payment Interval 1 month Conversion Period quarterly Outstanding Principal After: dth payment Dobt Principal Debt Payment Interest Rate $17.000 $1.265 6% (a) The number of payments required to amortize the debt is (Round up to the nearest integer.) (b) The outstanding principal is s (Round the final answer to the nearest cent as needed Round all intermediate values to six decimal places as needed)arrow_forwardIf the cost of debt for Sohar Textiles is 8.9% (effective rate) and the after-tax cost of debt is 0.057, what is the tax rate? Select one: a. All the given choices are not correct b. 0.360 c. 0.146 d. 1.640 e. 0.032arrow_forwardIf the cost of debt to Sohar Textiles is 8.9% (effective rate) and the cost of debt after tax is 0.052, what is the tax rate? Select one: O a. All options presented are incorrect Ob. 1.584 OC 0.416 Od. 0.141 E. 0.037arrow_forward
- An overview of a firm's cost of debt To calculate the after-tax cost of debt, multiply the before-tax cost of debt by . Three Waters Company (TWC) can borrow funds at an interest rate of 10.20% for a period of six years. Its marginal federal-plus-state tax rate is 25%. TWC’s after-tax cost of debt is (rounded to two decimal places). At the present time, Three Waters Company (TWC) has 10-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,495.56 per bond, carry a coupon rate of 10%, and distribute annual coupon payments. The company incurs a federal-plus-state tax rate of 25%. If TWC 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.) 3.38% 2.35% 2.94% 3.53%arrow_forwardAn amortization of a debt is in a form of a gradient series of P10,000 on the first year, P9,500 on the second year, P9,000 on the third year, P8,500 on the fourth year. Determine the future amount of the amortization if interest is 0.12.arrow_forwardAn amortization of a debt is in a form of a gradient series of ₱5,000 on the first year, ₱4,500 on the second year, ₱4,000 on the third year, ₱3,500 on the fourth year. Determine future amount of the amortization if interest is 5%. Ans. ₱18,449.37arrow_forward
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What is WACC-Weighted average cost of capital; Author: Learn to invest;https://www.youtube.com/watch?v=0inqw9cCJnM;License: Standard YouTube License, CC-BY