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Airborne Airlines Inc. has a $1,000 par value bond outstanding with 30 years to maturity. The bond carries an annual interest payment of $118 and is currently selling for $880. Airborne is in a 25 percent tax bracket. The firm wishes to know what the aftertax cost of a new bond issue is likely to be. The yield to maturity on the new issue will be the same as the yield to maturity on the old issue because the risk and maturity date will be similar.
a. Compute the yield to maturity on the old issue and use this as the yield for the new issue. (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)
b. Make the appropriate tax adjustment to determine the aftertax cost of debt. (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)
The Stodio Olimpico Corporation (SOC) is considering the purchase of a new machine to replace the existing one to increase the productivity of the company
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A put option on a stock with a current price of $48 has an exercise price of $50. The price of the corresponding call option is $4.50. According to put-call parity, if the effective annual risk-free rate of interest is 6% and there are four months un..
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