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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Chapter 9, Problem 9.5P
The cost of debt Gronseth Drywall Systems Inc. is in discussions with its investment bankers regarding the issuance of new bonds. The investment banker has informed the firm that different maturities will carry different coupon rates and sell at different prices. The firm must choose among several alternatives. In each case, the bonds will have a $1,000 par value and flotation costs will be $30 per bond. The company is taxed at a rate of 40%. Calculate the after-tax cost of financing with each of the following alternatives
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Gronseth Drywall Systems, Inc., is in discussions with its investment bankers
regarding the issuance of new bonds. The investment banker has informed the firm
that different maturities will carry different coupon rates and sell at different prices.
The firm must choose among several alternatives. In each case, the bonds will
have a $1,000 par value and flotation costs will be $30 per bond. Calculate the
before-tax cost of financing with the following alternative.
Coupon rate
Time to maturity
Premium or discount
17 years
The before-tax cost of debt is nothing%. (Round to two decimal places.)
10%
-$200
Gronseth Drywall Systems, Inc., is in discussions with its investment bankers regarding the issuance of new bonds. The investment banker has informed the firm that different maturities will carry different coupon rates and sell at different prices. The firm must choose among several alternatives. In each case, the bonds will have a
$1,000
par value and flotation costs will be
$30
per bond. Calculate the before-tax cost of financing with the following alternative.
coupon rate 9%
time to maturity 16 years
premium or discount $250
Blue Angel, Inc., a private firm in the holiday gift industry, is considering a new project. The company currently has a target debt-equity ratio of .45, but the industry target debt-equity ratio is .40. The industry average beta is 1.05. The market risk premium is 6.5 percent and the risk-free rate is 4.1 percent. Assume all companies in this industry can issue debt at the risk-free rate. The corporate tax rate is 24 percent. The project requires an initial outlay of $805,000 and is expected to result in a $97,000 cash inflow at the end of the first year. The project will be financed at the company’s target debt-equity ratio. Annual cash flows from the project will grow at a constant rate of 4 percent until the end of the fifth year and remain constant forever thereafter.
Calculate the NPV of the project.
Chapter 9 Solutions
Principles of Managerial Finance (14th Edition) (Pearson Series in Finance)
Ch. 9.1 - Prob. 1FOECh. 9.1 - What is the cost of capital?Ch. 9.1 - Prob. 9.2RQCh. 9.1 - Prob. 9.3RQCh. 9.1 - What are the typical sources of long-term capital...Ch. 9.2 - Prob. 9.5RQCh. 9.2 - Prob. 9.6RQCh. 9.2 - Prob. 9.7RQCh. 9.3 - How would you calculate the cost of preferred...Ch. 9.4 - What premise about share value underlies the...
Ch. 9.4 - How do the constant-growth valuation model and...Ch. 9.4 - Why is the cost of financing a project with...Ch. 9.5 - Prob. 1FOPCh. 9.5 - Prob. 9.13RQCh. 9.5 - Prob. 9.14RQCh. 9.5 - Prob. 9.15RQCh. 9 - Prob. 1ORCh. 9 - Learning Goals 3, 4, 5, 6 ST9-1 Individual...Ch. 9 - Prob. 9.1WUECh. 9 - Prob. 9.2WUECh. 9 - Prob. 9.3WUECh. 9 - Weekend Warriors Inc. has 35% debt and 65% equity...Ch. 9 - Oxy Corporation uses debt, preferred stock, and...Ch. 9 - Prob. 9.1PCh. 9 - Prob. 9.2PCh. 9 - Prob. 9.3PCh. 9 - Prob. 9.4PCh. 9 - The cost of debt Gronseth Drywall Systems Inc. is...Ch. 9 - After-tax cost of debt Bella Wans is interested in...Ch. 9 - Prob. 9.7PCh. 9 - Cost of preferred stock Determine the cost for...Ch. 9 - Prob. 9.9PCh. 9 - Prob. 9.10PCh. 9 - Retained earnings versus new common stock Using...Ch. 9 - The effect of tax rate on WACC K. Bell Jewelers...Ch. 9 - WACC: Market value weights The market values and...Ch. 9 - WACC: Book weights and market weights Webster...Ch. 9 - Prob. 9.15PCh. 9 - Cost of capital Edna Recording Studios Inc....Ch. 9 - Prob. 9.17PCh. 9 - Prob. 9.18PCh. 9 - Calculation of individual costs and WACC Lang...Ch. 9 - Weighted average cost of capital (WACC) American...Ch. 9 - Prob. 9.21PCh. 9 - Eco Plastics Company Since its inception, Eco...
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Bond Valuation - A Quick Review; Author: Pat Obi;https://www.youtube.com/watch?v=xDWTPmqcWW4;License: Standard Youtube License