Principles of Managerial Finance (14th Edition) (Pearson Series in Finance)
14th Edition
ISBN: 9780133507690
Author: Lawrence J. Gitman, Chad J. Zutter
Publisher: PEARSON
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Textbook Question
Chapter 6, Problem 6.10P
Bond interest payments before and after taxes Charter Corp. has issued 2,500 debentures with a total principal value of $2,500,000. The bonds have a coupon rate of 7%.
- a. What dollar amount of interest per bond can an investor expect to receive each year from Charter?
- b. What is Charter’s total interest expense per year associated with this bond issue?
- c. Assuming that Charter is in a 35% corporate tax bracket, what is the company's net after-tax interest cost associated with this bond issue?
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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?
b. What is the after-tax cost of debt?
c. Which is more relevant, the pre-tax or the after- tax cost of debt? Why?
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.
a. What is the company’s total book value of debt?
b. The total market value?
c. What is your best estimate of the after-tax cost of debt now?
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%.i) a. What is the pre-taxed cost of debt? b. What is the after tax cost of debt? c. Which is more relevant, the pre-tax or the after- tax cost of debt? Why?
ii) In 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.a. What is the company’s total book value of debt?b. The total market value?c. What is your best estimate of the after-tax cost of debt now?
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?
b. What is the after tax cost of debt?
c. Which is more relevant, the pre-tax or the after- tax cost of debt? Why?
Chapter 6 Solutions
Principles of Managerial Finance (14th Edition) (Pearson Series in Finance)
Ch. 6.1 - Prob. 1FOPCh. 6.1 - Prob. 6.1RQCh. 6.1 - What is the term structure of interest rates, and...Ch. 6.1 - For a given class of similar-risk securities, what...Ch. 6.1 - Prob. 6.4RQCh. 6.1 - List and briefly describe the potential issuer-...Ch. 6.2 - Prob. 1FOECh. 6.2 - What are typical maturities, denominations, and...Ch. 6.2 - Differentiate between standard debt provisions and...Ch. 6.2 - How is the cost of bond financing typically...
Ch. 6.2 - Prob. 6.9RQCh. 6.2 - Prob. 6.10RQCh. 6.2 - Compare the basic characteristics of Eurobonds and...Ch. 6.3 - Why is it important for financial managers to...Ch. 6.3 - Prob. 6.13RQCh. 6.3 - Prob. 6.14RQCh. 6.3 - Prob. 6.15RQCh. 6.4 - Prob. 6.16RQCh. 6.4 - What relationship between the required return and...Ch. 6.4 - If the required return on a bond differs from its...Ch. 6.4 - As a risk-averse investor, would you prefer bonds...Ch. 6.4 - Prob. 6.20RQCh. 6 - Prob. 1ORCh. 6 - Learning Goals 5, 6 ST6- 1 Bond valuation Lahey...Ch. 6 - Prob. 6.2STPCh. 6 - Prob. 6.1WUECh. 6 - The yields for Treasuries with differing...Ch. 6 - The YTMs for Treasuries with differing maturities...Ch. 6 - Assume that the rate of inflation expected over...Ch. 6 - Calculate the risk premium for each of the...Ch. 6 - Prob. 6.6WUECh. 6 - Prob. 6.7WUECh. 6 - Assume a 5-year Treasury bond has a coupon rate of...Ch. 6 - Prob. 6.1PCh. 6 - Prob. 6.2PCh. 6 - Prob. 6.3PCh. 6 - Yield curve A firm wishing to evaluate interest...Ch. 6 - Prob. 6.5PCh. 6 - Prob. 6.6PCh. 6 - Term structure of interest rates The following...Ch. 6 - Prob. 6.8PCh. 6 - Prob. 6.9PCh. 6 - Bond interest payments before and after taxes...Ch. 6 - Prob. 6.11PCh. 6 - Prob. 6.12PCh. 6 - Prob. 6.13PCh. 6 - Prob. 6.14PCh. 6 - Prob. 6.16PCh. 6 - Prob. 6.20PCh. 6 - Prob. 6.21PCh. 6 - Prob. 6.23PCh. 6 - Bond valuation: Semiannual interest Find the value...Ch. 6 - Prob. 1SE
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