Calculate the after tax cost of overlapping interest

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Reference no: EM131317570

The principal, coupon interest rate, and interest overlap period are shown in the following table for a number of bonds.

Bond	Principal	Coupon Interest Rate	Interest Overlap Period
A	$ 5,000,000	8.0%	3 months
B	40,000,000	7.0	2
C	50,000,000	6.5	3
D	100,000,000	9.0	6
E	20,000,000	5.5	1

a. Calculate the dollar amount of interest that must be paid for each bond during the interest overlap period.

b. Calculate the after-tax cost of overlapping interest for each bond if the firm is in the 40 percent tax bracket.

Reference no: EM131317570

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