ZuoTi.Pro
Question

. Global Products plans to issue long-term bonds to raise funds to finance its growth. The...

. Global Products plans to issue long-term bonds to raise funds to finance its growth. The company has existing bonds outstanding that are similar to the new bonds it expects to issue. the existing bonds have a face value equal to $1000, mature in 10 years, pay $70 interest annually (compounded semi-annually), and are currently selling for $1057 each. Global's marginal tax rate is 35 percent. a. What should be the coupon rate on the new bond issue? b. What is Global's after-tax cost of debt?

business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

Information provided:

Face value= future value= $1,000

Current value= present value= $1,057

Coupon payment= $35 per semi-annual period

Time= 10 years*2= 20 semi-annual periods

a.Coupon rate= Annual interest/ Par value of bond

                       = $70/ $1,000

                       = 0.07*1,00

= 7%.

b.The below has to be entered in a financial calculator to compute the yield to maturity:

FV= 1,000

PV= -1,057

PMT= 35

N= 20

Press the CPT key and I/Y to compute the yield to maturity.

The value obtained is 3.11.

Therefore, the yield to maturity is 3.11*2= 6.22%.

After tax cost of debt= Before tax cost of debt*(1- tax)

                                        = 6.22%*(1-0.35)

                                        = 4.04%.

Therefore, Global’s after tax cost of debt is 4.04%.

In case of any query, kindly comment on the solution.

1 0
Add a comment
Know the answer?
Add Answer to:
. Global Products plans to issue long-term bonds to raise funds to finance its growth. The...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • 2, (3 pts) (Cfin, 11-1) Global products plans to issue long term bonds to raise funds...

    2, (3 pts) (Cfin, 11-1) Global products plans to issue long term bonds to raise funds to finance its growth. The company has existing bonds outstanding that are similar to the new bonds it expects to issue. The existing bonds have a face value equal to $1000, mature in 10 years, pay $60 interest annually, and are currently selling for $1077 each. Global's marginal tax rate is 40%. (a) What should be the coupon rate on the new bond issue?...

  • 39. Tigner corporation is planning a bond issue to finance a new project. Tigner plans to...

    39. Tigner corporation is planning a bond issue to finance a new project. Tigner plans to issue 2000 bonds with a face value of $1000 each and a coupon rate of 9%. The tax rate is 40%. Projected EPS after completion of the project is $5.46. What are the projected after-tax earnings after completion of the project if there are 200,000 shares outstanding: $1,092,000 $1,100,000 $1,110,000 None of the above 40. Sturgis corporation is planning an equity issue to finance...

  • Costly Corporation plans a new issue of bonds with a par value of $1000, a maturity...

    Costly Corporation plans a new issue of bonds with a par value of $1000, a maturity of 24 years, and an annual coupon rate of 12.0%. Flotation costs associated with a new debt issue would equal 6.0% of the market value of the bonds. Currently, the appropriate discount rate for bonds of firms similar to Costly is 13.0%. The firm's marginal tax rate is 30%. What will the firm's true cost of debt be for this new bond issue?

  • Question seckham Corporation has semiannual bonds must bonds outstanding with 20 vears to maturity and the...

    Question seckham Corporation has semiannual bonds must bonds outstanding with 20 vears to maturity and the bond 746.16. If the bonds have a coupon rate of 8.5 percent, then what is the after-tax cost of arginal tax rate is 35%7 Round your intermediate calculation to two decimal places ar three decimal places. rity and the bonds are currently priced at after-tax cost of debt for Beckham if its con to two decimal places and final percentage answer to A. 8.236%...

  • 5. A firm is issuing new debt to finance a capital investment project. The firm will...

    5. A firm is issuing new debt to finance a capital investment project. The firm will issue 15,550 new bonds with a $1,000 face value that will mature in 10 years. The bonds will pay a $35 semiannual coupon, and similar bonds are currently priced at 95% of par. The associated flotation costs are expected to be $15 per bond. Further, the company has a marginal tax rate of 34%. Given this information, what is the before-tax cost of debt?...

  • Math of Finance A company wanted to raise $100, 000 and issued twenty, $5000 bonds paying...

    Math of Finance A company wanted to raise $100, 000 and issued twenty, $5000 bonds paying a 10% coupon rate payable semi-annually for 5 years. It set up a sinking fund to repay the debt at the end of 5 years and made deposits at the end of every six months into the fund. The sinking fund was earning 6.5% compounded semi-annually. (a) calculate the periodic cost of the debt (b) calculate the book value of the debt after 3...

  • Example 1 Last year, The CYS sold $40,000,000 worth of 7.5% coupon, 15-year maturity, $1000 par...

    Example 1 Last year, The CYS sold $40,000,000 worth of 7.5% coupon, 15-year maturity, $1000 par value, AA-rated; non-callable bonds to finance its business expansion. These bonds pay semi-annual coupon payments. At issuance, the yield to maturity was 8.4%. Currently, investors are demanding a yield of 8.5% on similar bonds. (a)If you own one of these bonds and want to sell it, how much money can you expect to receive on it? (b)If you can reinvest the coupons you receive...

  • Calculation of cost of capital The company’s CFO has informed the project team that the company plans to raise new capit...

    Calculation of cost of capital The company’s CFO has informed the project team that the company plans to raise new capital to fund the investment in the project. The company’s current capital structure consists of the following: Debt : 700,000 7.4% coupon secured notes with five years to maturity. These notes are currently priced at 95% of face value of $100, with half yearly coupon payments. Equity: 83,300,000 ordinary shares outstanding with a par value of $1 and currently selling...

  • What is ABC Inc.'s effective annual WACC given the following information? ABC has no outstanding preferred...

    What is ABC Inc.'s effective annual WACC given the following information? ABC has no outstanding preferred stock ABC does not pay any dividends ABC has one issue of 10,000 bonds outstanding, each priced at $841.88. The bonds have a face value of $1000, pay semi-annual coupons at a rate of 9% APR compounded semi-annually, and mature in 15 years. The next coupon payment is 6-months from today. ABC has 1,000,000 common stock shares outstanding, each priced at $16 per share....

  • I'm new to finance and trying to analyze my assumptions are correct if not can you please provide reasoning for the...

    I'm new to finance and trying to analyze my assumptions are correct if not can you please provide reasoning for the wrong answers? Brown company has assets of 100 and liabilities of 20. The liquidation value of brown company is 1. 100 80 20 none 2. Lawson corporation has 200000 shares outstanding. The price per share is $20. The market valuation of lawson is? 2 3 4 million none The post merger P/E for aston corporation is 12. The number...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT