What is the pretax cost of debt

Assignment Help Financial Management
Reference no: EM131317909

Jiminy's Cricket Farm issued a bond with 25 years to maturity and a semiannual coupon rate of 12 percent 3 years ago. The bond currently sells for 94 percent of its face value. The company's tax rate is 35 percent.

a. What is the pretax cost of debt?

b. What is the aftertax cost of debt?

c. Which is more relevant, the pretax or the aftertax cost of debt?

  • Aftertax cost of debt
  • Pretax cost of debt

Reference no: EM131317909

Questions Cloud

Consider project to supply postage stamp : Consider a project to supply 107 million postage stamps per year to the U.S. Postal Service for the next five years. You have an idle parcel of land available that cost $1,970,000 five years ago; if the land were sold today, it would net you $2,170,0..
Explain what depreciation-cash flow-operating cash flow : Explain what depreciation, cash flow, operating cash flow and NPV are and how they interact with business decisions. Explain why these financial concepts are important for you as an employee, owner, or investor.
Is the bank liable for the janitor''s negligence : Is the bank liable for the janitor's negligence? (Be sure to go through all the elements.) Additionally, note that under the doctrine of respondeat superior the bank WILL be liable for any potential negligence of the janitor employee?
Construct a concluding statement to end the essay : Write an introductory paragraph that provides a brief overview of the company featured in the video. Briefly describe the possessions of the organisation on the bases of its core values, technological intervention and innovation
What is the pretax cost of debt : a. What is the pretax cost of debt? b. What is the aftertax cost of debt? c. Which is more relevant, the pretax or the aftertax cost of debt?
Create two new arrays to hold the results of calculations : Create two new arrays to hold the results of calculations. Result array one is to hold the Euclidean distance between each point and the next point in the row.
Expected one-year rate during year 5 : Suppose the current rate on a 5-year Treasury is 4.5%, the current rate on a 4-year Treasury is 4.25%, and the one-year rate is 2.84%.  Using the unbiased expectations theory, what is the expected one-year rate during year 5, E(5r1)?
Bond using the straight line method : 1). Please record the journal entry for the timely interest payment of the bond using the straight line method that was made on June 30th. 2). Please record the journal entry for the timely interest payment of the bond using the straight line met..
Does lisa have a defense : Lisa and Danny are neighbors that live on Guerrero Street. Fifteen years ago Lisa built a gazebo. She frequently used the gazebo, but she was not aware that actually the gazebo was on property belonging to Danny. A month after the gazebo was built..

Reviews

Write a Review

Financial Management Questions & Answers

  Unsure about the assumptions of a growth rate

The Yurdone Corporation wants to set up a private cemetry business. According to the CFO, Barry M. Deep, business is "looking up". The company is somewhat unsure about the assumptions of a growth rate of 5.7 percent its cash flows. At what constant g..

  Liquidity premium is required on any treasury security

Suppose the rate of return on a 10-year T-bond is 6.55%, the expected average rate of inflation over the next 10 years is 2.0%, the MRP on a 10-year T-bond is 0.9%, no MRP is required on a TIPS, and no liquidity premium is required on any Treasury se..

  Evaluate pros and cons of increased regulatory requirement

New regulatory requirement imposed on banks and financial institutions may have impacted a bank’s ability to generate mortgages for home buyers by increased requirements for disclosures, notices, statements, and documents related to lending. Evaluate..

  Constructing a portfolio of two assets

You are constructing a portfolio of two assets, Asset A and Asset B. The expected returns of the assets are 14 percent and 17 percent, respectively. The standard deviations of the assets are 40 percent and 48 percent, respectively.

  Short term treasury securities

A bank has $1 million in vault cash, $5 million in short term Treasury securities and $20 million in deposits at a Federal Reserve Bank. Identify the term or concept that fits each description. The interest rate the Fed charges banks for short term l..

  Consistent with portfolio theory

A stock price is $100 and can go up or down $10 in one month. The risk-free interest rate is 5% and no dividends are scheduled. What is your annualized expected return and risk if you invest in the stock? Is your answer consistent with portfolio theo..

  What is the profitability index if the discount rate

The Company X. is currently considering a project that will produce cash inflows of $12,000 a year for three years followed by $6,500 in year four. The cost of the project is $38,000. What is the profitability index if the discount rate is 7 percent?

  What is the value of the firm under plan

Kyle Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, Kyle would have 705,000 shares of stock outstanding. Under Plan II, there would be 455,000 shares of stock outstan..

  What forms can strategic alliances takewhat is the

1. what is a strategic alliance?2. do most strategic alliances succeed?3. what forms can strategic alliances take?4.

  The average cost of those same automobiles

In 2005, selected automobiles had an average cost of $18,000. The average cost of those same automobiles in now $21,960. What was the rate of increase for these automobiles between the two time periods?

  Instead of ordinary annuity and interest rate change

By approximately how much more would the present value of annuity be for $4000/year annual payments for the next 5 year with an interest rate 10% APR compounded semi-annually if the cash flows were annuity due instead of ordinary annuity and interest..

  What is the companys net working capital

Winston Electronics reported the following information at its annual meetings. The company had cash and marketable securities worth $1,235,540, accounts payables worth $4,160,490, inventory of $7,121,930, accounts receivables of $3,488,740, notes pay..

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