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Russell Container Corporation has a $3,500 par value bond outstanding with 30 years to maturity. The bond carries an annual interest payment of $148 and is currently selling for $1,370 per bond. Russell Corp. is in a 30 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.
Assume that the yield on the bonds goes up by 1 percentage point and that the tax rate is now 39%.
a. What is the new after-tax cost of debt? (Round answer to 2 decimal places)
b. Has the after-tax cost gone up or down?
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When South Korea's export growth stalled, some South Korean firms suggested that South Korea's primary export problem was the weakness in the Japanese yen.
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Calculate the current beta for Mercury, Inc. The rate on 30-year U.S. Treasury bonds is currently 8%. The market risk premium is 5%. Mercury returned 18% to its stockholders in the latest year.
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The after-tax cash inflows associated with this purchase are projected to amount to $250,000 per year for 15 years. Will this factor change the firm's decision about how to fund the initial investment.
What is the present (Year 0) value of cash flow stream if the opportunity cost rate is 10 percent?
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