- Cost Of Debe Sincere Stationery Corporation Needs To Raise 600 000 To Improve Its Manufacturing Plant It Has Decided 1 (37.27 KiB) Viewed 32 times
- Cost Of Debe Sincere Stationery Corporation Needs To Raise 600 000 To Improve Its Manufacturing Plant It Has Decided 2 (42.31 KiB) Viewed 32 times
- Cost Of Debe Sincere Stationery Corporation Needs To Raise 600 000 To Improve Its Manufacturing Plant It Has Decided 3 (46.21 KiB) Viewed 32 times
(Cost of debt) Sincere Stationery Corporation needs to raise $600,000 to improve its manufacturing plant. It has decided to issue a $1.000 par value bond with an annual coupon rate of 14 percent and a maturity of 14 years. The investors require a rate of return of 7 percent. 1. Compute the market value of the bonds. b. What will the net price be if flotation costs are 14 percent of the market price? c. How many bonds will the firm have to issue to receive the needed funds? d. What is the firm's after-tax cost of debt if its marginal tax rate is 27 percent? e. Rework the problem as follows: Assume a coupon rate of 9 percent. 1. What effect doos changing the coupon rate have on the firm's after-tax cost of capital? Why is there a change? LE مرا e. If the bond's annual coupon rate is 9%, what is the market value of the bond? (Round to the nearest.cent) What will the net price be if flotation costs are 14 percent of the market price? $(Round to the nearest cent.) How many bonds will the firm have to issue to receive the needed funda? bonds (Round to the nearest whole number) What is the firm's after-tax cost of debt if its marginal tax rate is 27 percent? % (Round to two decimal places.) . Which of the following statements hast describes the effect of cun rate on the firm's After-tax cost of deht? (Select the best choice below!
(Cost of debr) Sincere Stationery Corporation needs to raise $600,000 to improve its manufacturing plant. It has decided to issue a $1,000 pur value bond with an annual coupon rate of 14 percent and a maturity of 14 years. The investors require a rate of rotum of 7 percent. a. Compute the market value of the bonds. b. What will the net price be if flotation costs are 14 percent of the market price? c. How many bonds will the firm have to issue to receive the needed funds? d. What is the firm's after-tax cost of debt if its marginal tax rate is 27 percent? e, Rework the problem as follows. Assume a coupon rate of 9 percent. 1. What effect does changing the coupon rate have on the firm's after-tax cost of capital? Why is there a change? How many bonds will the firm have to issue to receive the needed funds? bonds (Round to the nearest whole number.) What is the firm's after-tax cost of debt if its marginal tax rate is 27 percent? 0% (Round to two decimal places.) f. Which of the following statements best describes the effect of coupon rate on the firm's after-tax cost of debt? (Select the best choice below) OA. A lower coupon rate increases the bond price and increases the flotation cost. As a result, the after-tax cost of debt is slightly raised. B. A lower coupon rate increases the bond price but lowers the flotation cost. As a result, the after-tax cost of debt is slightly reduced, OC. A lower coupon rate lowers the bond price but increases the flotation cost. As a result, the after-tax cost of debt is slightly raised D. A lower coupon rate lowers the bond price and lowers the flotation cost. As a result, the after-tax cost of debt is slightly reduced.