Tax adjustment to determine the aftertax cost of debt

Assignment Help Financial Management
Reference no: EM131020837

Russell Container Corporation has a $1,000 par value bond outstanding with 20 years to maturity. The bond carries an annual interest payment of $126 and is currently selling for $980 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. 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.)

Reference no: EM131020837

Questions Cloud

Record the correcting entry for errors discovered : Prepare the appropriate correcting entry assuming the error was discovered in 2016 before the adjusting and closing entries. (Ignore income taxes.)
What is the total amount of interest that will pay : Jeff buys a house for $220,000. He makes a 10% down payment and nances the remaining balance with a 15 year mortgage. The annual interest rate is 2.875% and interest is compounded monthly. What is the total amount of interest that Jeff will pay?
Additional notes payable and use them to increase inventory : The Nelson Company has $1,000,000 in current assets and $400,000 in current liabilities. Its initial inventory level is $200,000, and it will raise funds as additional notes payable and use them to increase inventory. How much can Nelson's short-term..
What is washington-pacific expected rate of return : Washington-Pacific (W-P) invests $3 million to buy a tract of land and plant some young pine trees. The trees can be harvested in 14 years, at which time W-P plans to sell the forest at an expected price of $6 million. What is W-P's expected rate of ..
Tax adjustment to determine the aftertax cost of debt : Russell Container Corporation has a $1,000 par value bond outstanding with 20 years to maturity. The bond carries an annual interest payment of $126 and is currently selling for $980 per bond. Russell Corp. is in a 30 percent tax bracket. Make the ap..
The company expects to extract : The company expects to extract 1,090,000 tons of coal during a four-year period. During 2016, 259,000 tons were extracted and sold immediately.
Present value of an annuity : Find the present value of the following ordinary annuities. Round your answers to the nearest cent. (Notes: If you are using a financial calculator, you can enter the known values and then press the appropriate key to find the unknown variable. This ..
Treasury notes or the portfolio of zeroes : Suppose an investor would like to buy 200 Treasury notes. The investor wants notes with an annual coupon rate of 7%, a 3-year maturity, and semi-annual coupon payments. Now suppose there is a 3-year, 7% coupon rate Treasury note available that has a ..
Three key figures on the cash flow statement : Which of the three key figures on the Cash Flow Statement is the most important for assessing the financial health of the business? Select one: a. Cash flow from investing activities b. Cash flow from financing activities c. Cash flow from operating ..

Reviews

Write a Review

Financial Management Questions & Answers

  An increase in capital per worker-technological progress

An increase in capital per worker will: Technological progress will: If technology advances, then:

  The most significant challenge to business success you see

in this weekrsquos reading nbspand learning activities you learned aboutthe increasingly competitive global economy.why

  Risks is irrelevant to a well-diversified investor

Which one of the following risks is irrelevant to a well-diversified investor? systematic portion of a surprise non diversifiable risk systematic risk market risk unsystematic risk

  Calculate the daily sales during the discount sales period

Fiberia Accessories, a clothing retailer, is planning to introduce a new line of sweaters as part of the winter collection for $65 with an inventory of 1500. The main selling season is 60 days between November and December.

  What is the maximum percentage of social security

A 68-year old taxpayer has $20,000 in social security income and has significant other taxable retirement income. What's the maximum percentage of Social Security that the taxpayer might be required to include in taxable income?

  What proceeds will they receive on sale of the property

A house is selling for $150,000. A deposit of $20,000 was made when the sales contract was signed. The down payment is 30% and the balance will be financed with a 25-year mortgage at 4.25% and 4 discount points. If the sellers are responsible for the..

  Ahat is a ventures present value does the past matter

a.what is a ventures present value? does the past matter? what is meant by the statement if you are not using

  Large non-profit health relief organization

Choice five - your role is as the chief administrative officer of a large non-profit health relief organization. After reviewing the course concepts you will identify several issues that directly connect to the written assignment. You are in the role..

  Using covered interest arbitrage

The current spot rate is C$1.377 and the one-year forward rate is C$1.317. The nominal risk-free rate in Canada is 5 percent while it is 9 percent in the U.S. Using covered interest arbitrage you can earn an extra _____ profit over that which you wou..

  Calculate the economic manufacturing quantity

The demand for 1,000 units of a part to be used at a uniform rate throughout the year may be met by manufacturing. The part can be produced at the rate of 3 per hour in a department that works 1,880 hours per year. The set-up cost per lot is estimate..

  About-transaction-translation or economic

Pick a publicly listed MNC that has at least 20 per cent revenues from outside USA. From their latest annual report answer the following. What type of foreign currency exposure are they most worried about: transaction, translation or economic? How do..

  What is value of enh according to mm with corporate taxes

The Ensyder Nursing Home (ENH) is a zero growth firm with an EBIT of $250,000 and a corporate tax rate of 40 percent. ENH uses $1 million of debt financing, and the cost of equity of an unleveraged firm in the same risk class is 15 percent. What is t..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd