Reasonable estimate for its after-tax cost of debt

Assignment Help Financial Management

Reference no: EM13938286

The ___________ is the interest rate that a firm pays on any new debt financing.

A. Before-tax cost of debt.

B. After-tax cost of debt.

Bedrick Co. Can borrow at an interest rate of 7.3% for a period of eight years. Its marginal federal-plus state tax rate is 40%. What is Bedrick's after-tax cost of debt?

A. 5.1%

B. 4.8%

C. 3.7%

D. 4.4%

Bedrick Co. has an outstanding 10-year non-callable Bond with a face value of $1,000. These bonds have a current market price of $1,278.41 and an annual coupon rate of 11%. The company faces a tax rate of 40%. If the company wants to issue new debt, what would be a reasonable estimate for its after-tax cost of debt?

A. 4.85%

B. 4.22%

C. 5.06%

D. 3.38%

Reference no: EM13938286

Questions Cloud

What was your total real return on investment : You bought one of Great White Shark Repellant Co.’s 10 percent coupon bonds one year ago for $770. These bonds make annual payments and mature 7 years from now. Suppose you decide to sell your bonds today, when the required return on the bonds is 11 ..

What is supply net income : Dharma Supply has earnings before interest and taxes (EBIT) of $563,000, interest expenses of $259,000, and faces a corporate tax rate of 34 percent. What is Dharma Supply's net income? If it didn't have any debt, Dharma's net income is?

Describe the health concerns of the community : Describe the health concerns of the community.Identify current environmental risk assessment methods which apply to public health issues.

Calculate the margin of safety in dollars : Calculate expected profit. Calculate the margin of safety in dollars.

Reasonable estimate for its after-tax cost of debt : Bedrick Co. Can borrow at an interest rate of 7.3% for a period of eight years. Its marginal federal-plus state tax rate is 40%. What is Bedrick's after-tax cost of debt? Bedrick Co. has an outstanding 10-year non-callable Bond with a face value of $..

How are research studies in the united states funded : How are research studies in the United States funded? Does the source of funding impact the focus or reported outcomes of the studies?

Analyzing a project with an initial cost : Antonio's is analyzing a project with an initial cost of $38,000 and cash inflows of $25,000 a year for 2 years. This project is an extension of the firm's current operations and thus is equally as risky as the current firm. The firm uses only debt a..

What is the weighted average contribution margin ratio : What is the weighted average contribution margin ratio? What level of sales is needed to earn a profit of $600,000 assuming the current mix?

Compare and contrast cellular and humoral immunity : "Make a chart or table in Microsoft Word to compare and contrast cellular and humoral immunity" including the following factors: Development

User Account

All Pages