Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Chapter 27, Problem 7P
Summary Introduction
To determine: The loan which has the higher effective annual rate.
Introduction:
Banks are mainly useful for the small-scale business. The effective interest rate on bank loan is affected by common loan stipulations and fees.
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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
Chapter 27 Solutions
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Ch. 27.1 - Prob. 1CCCh. 27.1 - What is the effect of seasonalities on short-term...Ch. 27.2 - Prob. 1CCCh. 27.2 - What is the difference between temporary and...Ch. 27.3 - Prob. 1CCCh. 27.3 - Describe common loan stipulations and fees.Ch. 27.4 - What is commercial paper?Ch. 27.4 - How is interest paid on commercial paper?Ch. 27.5 - Prob. 1CCCh. 27.5 - What is the difference between a floating lien and...
Ch. 27 - Prob. 1PCh. 27 - Sailboats Etc. is a retail company specializing in...Ch. 27 - What is the difference between permanent working...Ch. 27 - Quarterly working capital levels for your firm for...Ch. 27 - Prob. 5PCh. 27 - Prob. 6PCh. 27 - Prob. 7PCh. 27 - Prob. 8PCh. 27 - Which of the following one-year 1000 bank loans...Ch. 27 - The Needy Corporation borrowed 10,000 from Bank...Ch. 27 - Prob. 11PCh. 27 - Prob. 12PCh. 27 - Prob. 13PCh. 27 - The Signet Corporation has issued four-month...Ch. 27 - Prob. 15PCh. 27 - Prob. 16PCh. 27 - Prob. 17PCh. 27 - Prob. 18P
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