Purchase Solution

After tax cost of debt

Not what you're looking for?

Ask Custom Question

6. Russell Container Corporation has a $1,000 par value bond outstanding with 20 years to maturity. The bond carries an annual interest payment of $95 and is currently selling for $920 per bond. Russell Corp. is in a 25 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 approximate yield to maturity (Formula 11-1) on the old issue and use this as the yield for the new issue.
b. Make the appropriate tax adjustment to determine the after tax cost of debt.

Attachments
Purchase this Solution
Solution Preview

a. Compute the approximate yield to maturity (Formula 11-1) on the old issue and use this as the yield for the new issue.

Annual interest ...

Purchase this Solution
Free BrainMass Quizzes
Team Development Strategies

This quiz will assess your knowledge of team-building processes, learning styles, and leadership methods. Team development is essential to creating and maintaining high performing teams.

Paradigms and Frameworks of Management Research

This quiz evaluates your understanding of the paradigm-based and epistimological frameworks of research. It is intended for advanced students.

Six Sigma for Process Improvement

A high level understanding of Six Sigma and what it is all about. This just gives you a glimpse of Six Sigma which entails more in-depth knowledge of processes and techniques.

Income Streams

In our ever changing world, developing secondary income streams is becoming more important. This quiz provides a brief overview of income sources.

IPOs

This Quiz is compiled of questions that pertain to IPOs (Initial Public Offerings)

View More Free Quizzes
Related BrainMass Solutions

  • After tax cost of debt

    275190 After tax cost of debt: Example problem For a firm paying 7% for a new debt, the higher the firm's tax rate A. The higher the after-tax cost of debt B. The lower the after tax cost of debt C. After tax cost is unchanged D.

  • Calculating after tax cost of capital

    Since this foundation is tax exempt, after tax cost of debt will be same as pretax cost of debt. After tax cost of debt =8%*(1+15%)=9.20% B.

  • After tax cost of debt

    After tax cost of debt

  • After tax cost of debt for Goodsmith Charitable Foundation

    This year's debt is issued at= 9.60% =1.2x8% Tax rate= 35% After tax cost of debt= interest rate x (1- Tax rate)= 6.24% =9.6%*(1-35.%) Answer: After tax cost of debt = 6.24%.

  • WACC: Weighted Average Cost of Capital

    WACC = cost of equity* equity ratio + after tax cost of debt *debt ratio 0.105= 0.165*0.5525+ after tax cost of debt *0.4475 After tax cost of debt = (0.105 -0.165*0.5525)/0.4475 After tax cost of debt = 0.030921788

  • Calculating a Corporation's Cost of Debt

    What is the pretax cost of debt? What is the after-tax cost of debt? Which is more relevant the pretax or the after-tax cost of debt? Why? Show your work. See attached file. What is the pretax cost of debt?

  • After tax Cost of Debt.

    123782 After tax Cost of Debt. Calculate the after-tax cost of debt under each of the following conditions.

  • Calculating the after-tax cost of debt for a business

    a. 0 percent Tax Rate=T=0% Cost of debt=rd=11% After tax cost of debt=rd*(1-T)=11%*(1-0%)=11% b. 20 percent Tax Rate=T=20% Cost of debt=rd=11% After tax cost of debt=rd*(1-T)=11%*(1-20%)=8.80% c. 40 percent Tax Rate=T=40% Cost

  • Discounting unlevered cash flows, cost of debt, WACC

    The appropriate cost of debt to the firm is: a. the weighted cost of debt after tax. 3.

  • Calculate the after-tax cost of debt

    Theory: After tax cost of debt = Interest rate*(1-Tax rate) a) After tax cost of debt = 13%*(1-0%)=13% b) After tax cost of debt = 13%*(1-20%)=10.4% c) After tax cost of debt = 13%*(1-35%)=8.45%.

View More Related Solutions