What is the pretax cost and aftertax cost of debt

Assignment Help Financial Management
Reference no: EM13917706

Shanken Corp. issued a bond with a maturity of 20 years and a semiannual coupon rate of 6 percent 2 years ago. The bond currently sells for 92 percent of its face value. The company’s tax rate is 35 percent.

a. What is the pretax cost of debt? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).)

b. What is the aftertax cost of debt? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).)

Reference no: EM13917706

Questions Cloud

What is the real interest rate : Suppose there is a second bond, paying two years from now the purchasing power that $100 has today. Suppose this bond costs $95.02 today. On the basis of these figures, is the real interest rate next year lower or higher than this year?
Accounting major and has number of options for summer break : Elroy Rocket is entering his senior year as an accounting major and has a number of options for his summer break. His options for the 3 month break follow: Elroy's incremental profit or loss if he chooses option 2 over option 1 would be?
What is the companys debt-equity ratio : Fama’s Llamas has a weighted average cost of capital of 9.3 percent. The company’s cost of equity is 13 percent, and its pretax cost of debt is 7.3 percent. The tax rate is 40 percent. What is the company's debt-equity ratio?
What is the companys debt-equity ratio : Fama’s Llamas has a weighted average cost of capital of 9.3 percent. The company’s cost of equity is 13 percent, and its pretax cost of debt is 7.3 percent. The tax rate is 40 percent. What is the company's debt-equity ratio?
What is the pretax cost and aftertax cost of debt : Shanken Corp. issued a bond with a maturity of 20 years and a semiannual coupon rate of 6 percent 2 years ago. The bond currently sells for 92 percent of its face value. The company’s tax rate is 35 percent. What is the pretax cost of debt? What is t..
Treasury note pays interest : A 6% coupon U.S. Treasury note pays interest on May 31 and November 30 and is traded for settlement on August 10. What is the accrued interest on the $100,000 face amount of this note?
Identify and describe an individual motivations for marriage : Identify and describe an individual's motivations for marriage. Describe the problems and benefits associated with military marriages. Compare the positions of pro-life and pro-choice
What would your annual total rate of return on holding bond : You purchased a 5-year annual-interest coupon bond 1 year ago. Its coupon interest rate was 6%, and its par value was $1,000. At the time you purchased the bond, the yield to maturity was 4%. If you sold the bond after receiving the first interest pa..
What is the yield to call on this bond : A callable bond pays annual interest of $60, has a par value of $1,000, matures in 20 years but is callable in 10 years at a price of $1,100, and has a value today of $1055.84. What is the yield to call on this bond?

Reviews

Write a Review

Financial Management Questions & Answers

  Change in depreciation affect net income in current year

Assume you work as an assistant accountant in the head office of a national movie rental business, a la Blockbuster Inc. With the increasing popularity of online movie rental operations, your company has struggled to meet its earnings targets for the..

  Which of these indicates that a firm is efficient

What is the residual income for a firm with $1 million in total capital, $300,000 in net income, and a 20% cost of capital? Which of these indicates that a firm is efficient?

  What is the initial monthly payment

A borrower is considering a 1-year adjustable rate mortgage of $250,000 that starts at 2.5%, 30 year amortization. The margin is 2.25%. The annual change caps are 2% per year. The current index is 1.25%. The life cap is 6% over the start rate. What i..

  Regulated investment company by internal revenue service

An investment company will be treated as a "regulated Investment Company" by the Internal Revenue Service provided that it: I. invests almost all of its assets in bonds, stocks, and other securities. II. Invests solely in U.S. securities. III. Does n..

  What is the present value of the interest tax shield

A firm has perpetual debt of $10 million at an interest rate of 7%. What is the present value of the interest tax shield if the tax rate is 35%?

  Best estimate of the stocks current intrinsic value

Paradise Tours, Inc. just paid a dividend of $3.50. Analysts expect the company's dividend to grow by 35% this year, by 20% in year 2, and at a constant rate of 5% in Year 3 and thereafter. The required rate of return on PTI's stock is 15.00%. What i..

  Consider european call option on non dividend-paying stock

Consider a European call option on a non dividend-paying stock. This option is priced using a two-period binomial tree.

  What is cost of capital to the firm for preferred stock

Your firm is planning to issue preferred stock. The stock is expected to sell for $98.91 a share and will have a $100 par value on which the firm will pay a 14.3% dividend. What is the cost of capital to the firm for the preferred stock?

  Find an interesting article about finance and share

Find an interesting article about finance and share with the class! Possible topics include but are not limited to the equity markets, bond markets, quantitative easing, global trade, emerging markets, and frontier markets. Be sure to share your key ..

  What is the internal rate of return

What is the internal rate of return for the following investment: $10,000 invested at the beginning of the first year (now); $6,000 invested at the end of the first year; and $22,000 withdrawn at the end of the fourth year?

  What is the capitalized equivalent cost

A manufacturing company is considering a new investment in a machine that will cost $117,000 and has an annual cost of $7,900. There is also an additional overhauling cost of $24,000 for the equipment once every four years. Assuming that this equipme..

  Respectively the supply and demand for the commodity

The producer of a certain commodity determines that to protect profits, the price p should decrease at a rate equal to half the inventory surplus S−D, where S and D are respectively the supply and demand for the commodity. Suppose the supply and dema..

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