What is the after-tax cost of debt

Assignment Help Financial Management
Reference no: EM132004370

Suppose a company will issue new 20-year debt with a par value of $1,000 and a coupon rate of 9%, paid annually. The tax rate is 40%.

If the flotation cost is 2% of the issue proceeds, then what is the after-tax cost of debt?

Disregard the tax shield from the amortization of flotation costs. Round your answer to two decimal places.

Reference no: EM132004370

Questions Cloud

Determine interest rates on deposits and loans : Determine interest rates on deposits and loans. Calculate the banker control rent (profit) and delegation cost per borrower.
What is the value of the firms equity : Suppose the firm has no debt and pays out its net income as a dividend each year. What is the value of the? firm's equity?
What percentage of this loss will insurance company pay : How much insurance should they have carried to meet the co-insurance obligation? What percentage of this loss will the insurance company pay?
What is the present value of this project to the company : Assuming the company completes the project on schedule, what is the present value of this project to the company?
What is the after-tax cost of debt : If the flotation cost is 2% of the issue proceeds, then what is the after-tax cost of debt?
Strategy to capitalize on expected exchange rate movement : As part of a strategy to capitalize on the expected exchange rate movement, the bank could ___ euros and ___ dollars.
What is the irr of the project : Calculate the net present value of the above project for discount rates of 0, 50, and 100%.
What if you issue the zeroes : Assume the required return on your bond issue will be 8.3 percent, and you're evaluating two issue alternatives.
What are the tax consequenses from receiving these funds : Telsa Corporation received $400,000,000 from the state of Nevada to built a plant in that state. What are the Tax consequenses from receiving these funds

Reviews

Write a Review

Financial Management Questions & Answers

  How much money should jessica invest today for her tour

She wants to make a lump-sum today deposit and earn interest so that she can withdraw $12,500 each year for the three years she on her trip.

  What is the result of your research efforts

What is the result of your research efforts? Do the financial options assist in stabilizing or destabilizing the stock and commodities markets? Explain

  An investment will generate

An investment will generate $10,000 a year for 25 years. Would your answer be different if you could earn only 7 percent?

  The expected return on the market portfolio

The risk-free rate is 6.0% and the expected return on the market portfolio is 12.0%. Asset A has a beta of 0.75 and an expected return of 10.0%. Asset B has a beta of 1.30 and an expected return of 14.0%. Under the CAPM, investors should:

  Issued stock dividends during the current period

For this discussion, assume the role of an investor. How would you know whether the company you are considering to invest in has repurchased any of its own stock and/or issued stock dividends during the current period? Why is this important, and woul..

  Percentage of earnings does hornberger plow back into firm

What percentage of its earnings does Hornberger plow back into the firm??

  How much money would have been in the account in 1992

In 1492, Queen Isabella sponsored Christopher Columbus journey by giving him $10,000. If she had placed this money in a bank account.

  What would be the price of the bond if the yield rose

What is the price of a $1,000 par value bond with a 6% coupon rate paid semiannually, if the bond is priced to yield 5% and it has 9 years to maturity? What would be the price of the bond if the yield rose to 7%. What is the current yield on the bond..

  There were no other transaction costs or finance charges

There were no other transaction costs or finance charges. How much will Audrey’s balloon payment be in eight years?

  What was the firms cash flow to creditors

The December 31, 2015, balance sheet of Schism, Inc., showed long-term debt of $1,385,000, and the December 31, 2016, balance sheet showed long-term debt of $1,550,000. The 2016 income statement showed an interest expense of $92,500. What was the fir..

  Calculate the annual depreciation each year for tax purposes

Calculate the annual depreciation each year for tax purposes over the five years, using a depreciation rate of 10% p.a., prime cost basis.

  Machining a particular part on either of two machines

The process engineer at Strow bridge Metal works has the choice of machining a particular part on either of two machines. Orders for this part re received regularly, but the order size varies.. When the order is processed on machine A, four sequentia..

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