Calculate the wacc change if new tax rate was adopted

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1. The bonds XYZ, Inc pay an annual coupon rate of 10% and have 12 year maturity. If investors required rate of return is now 8% on these bonds a) Will the bonds be selling at a premium or a discount with respect to $1,000 face value? Why? b) What is the fair price of the bonds?

2. Admiral Thrawn Inc. plans to issue a $1,000 par value, 10-year noncallable bonds with a 4% annual coupon. The company's current tax rate is 56%, but Congress is considering a change in the corporate tax rate to 22%. By how much would the component cost of debt used to calculate the WACC change (in percent) if the new tax rate was adopted?

Reference no: EM131894045

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