CFIN -STUDENT EDITION-ACCESS >CUSTOM<
6th Edition
ISBN: 9780357752951
Author: BESLEY
Publisher: CENGAGE C
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Ying Import has several bond issues outstanding, each making semiannual interest payments. The bonds are listed in the table below.
Bond
1
Coupon Rate
8.80%
Price Quote
Maturity
4 years
Face Value
$
28,000,000
7 years
48,000,000
14.5 years
24 years
53,000,000
68,000,000
234
7.00
8.50
9.00
105.8
94.6
104.6
106.5
If the corporate tax rate is 23 percent, what is the aftertax cost of the company's debt?
Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.
Aftertax cost of debt
%
Problem 14-20 WACC and NPV [LO3, 5]
Leblanc, Incorpated, is considering a project that will result in initial
aftertax cash savings of $1.9 million at the end of the first year, and
these savings will grow at a rate of 1 percent per year indefinitely.
The firm has a target debt-equity ratio of .75, a cost of equity of 13
percent, and an aftertax cost of debt of 5.8 percent. The cost-
saving proposal is somewhat riskier than the usual project the firm
undertakes; management uses the subjective approach and applies
an adjustment factor of +2 percent to the cost of capital for such
risky projects. What is the maximum initial cost the company would
be willing to pay for the project?
Do not round intermediate calculations and enter your answer in
dollars, not millions of dollars, rounded to the nearest whole
number, e.g., 1,234,567.
Maximum cost
$
17,400,000
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