FINANCIAL MANAGEMENT: THEORY AND PRACT
15th Edition
ISBN: 9781305632455
Author: BRIGHAM E. F.
Publisher: CENGAGE L
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Chapter 9, Problem 14P
Summary Introduction
To determine: The post-tax cost of debt.
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The Cost of Debt and Flotation Costs. Suppose a company will issue new 25-year debt with a par value of $1,000 and a coupon rate of 9%, paid annually. The issue price will be $1,000. The tax rate is 25%. If the flotation cost is 2% of the issue proceeds, then what is the after-tax cost of debt? Round your answer to two decimal places. % What if the flotation costs were 10% of the bond issue? Round your answer to two decimal places. %
Arnell Industries has 5.5 million in permanent debt outstanding. The firm will pay interest only on this debt. Arnell's marginal tax rate is expected to be 40% for the foreseeable future. a. Suppose Arnell pays interest of 9% per year on its debt. What is its annual interest tax shield? b. What is the present value of the interest tax shield, assuming its risk is the same as the loan? c. Suppose instead the interest rate on the debt were 7%. What is the present value of the interest tax shield in this case?
ICU Window, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 9 years to maturity that is quoted at 107 percent of face value. The issue makes semiannual payments and has an embedded cost of 6.6 percent annually.
What is the company's pretax cost of debt? If the tax rate is 24 percent, what is the aftertax cost of debt?
Pretax cost of debt: __________%
Aftertax cost of debt: __________%
Chapter 9 Solutions
FINANCIAL MANAGEMENT: THEORY AND PRACT
Ch. 9 - Define each of the following terms: a. Weighted...Ch. 9 - Prob. 2QCh. 9 - Prob. 3QCh. 9 - Distinguish between beta (i.e., market) risk,...Ch. 9 - Suppose a firm estimates its overall cost of...Ch. 9 - Calculate the after-tax cost of debt under each of...Ch. 9 - Prob. 2PCh. 9 - Duggins Veterinary Supplies can issue perpetual...Ch. 9 - Prob. 4PCh. 9 - Summerdahl Resorts common stock is currently...
Ch. 9 - Booher Book Stores has a beta of 0.8. The yield on...Ch. 9 - Prob. 7PCh. 9 - David Ortiz Motors has a target capital structure...Ch. 9 - Prob. 9PCh. 9 - The earnings, dividends, and stock price of Shelby...Ch. 9 - Radon Homes’ current EPS is $6.50. It was $4.42 5...Ch. 9 - Spencer Supply’s stock is currently selling for...Ch. 9 - Prob. 13PCh. 9 - Prob. 14PCh. 9 - Prob. 15PCh. 9 - Suppose the Schoof Company has this book value...Ch. 9 - Prob. 1MCCh. 9 - Prob. 2MCCh. 9 - Prob. 3MCCh. 9 - Prob. 4MCCh. 9 - Prob. 5MCCh. 9 - Prob. 6MCCh. 9 - Prob. 7MCCh. 9 - Prob. 8MCCh. 9 - Prob. 9MCCh. 9 - Prob. 10MCCh. 9 - Prob. 11MCCh. 9 - Prob. 12MCCh. 9 - Prob. 13MCCh. 9 - Prob. 14MCCh. 9 - Prob. 15MCCh. 9 - Prob. 16MC
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