Compute the yield to maturity on the old issue

Assignment Help Financial Management

Reference no: EM131188254

Airborne Airlines Inc. has a $1,000 par value bond outstanding with 30 years to maturity. The bond carries an annual interest payment of $108 and is currently selling for $940. Airborne is in a 30 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 yield to maturity on the old issue and use this as the yield for the new issue. (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

Yield on new issue %

b. Make the appropriate tax adjustment to determine the aftertax cost of debt. (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

Aftertax cost of debt %

Reference no: EM131188254

Questions Cloud

Project is expected to destroy value of corporate owners : Which one of the following indicates that a project is expected to destroy value of corporate owners?

What is current value of this stock if the required return : General Importers announced today that its next annual dividend will be $2.60 per share. After that dividend is paid, the company expects to encounter some financial difficulties and is going to suspend dividends for five years. Following the suspens..

Considering purchasing some new equipment costing : Delta Mu Delta is considering purchasing some new equipment costing $400,000. The equipment will be depreciated on a straight-line basis to a zero book value over the four-year life of the project. Projected net income for the four years is $18,900, ..

What is the value of project with average risk : Suppose? Alcatel-Lucent has an equity cost of capital of 10.4 % ?, market capitalization of $ 10.22 ?billion, and an enterprise value of $ 14.0 billion with a debt cost of capital of 5.9 % and its marginal tax rate is 34 % . What is? Alcatel-Lucent's..

Compute the yield to maturity on the old issue : Airborne Airlines Inc. has a $1,000 par value bond outstanding with 30 years to maturity. The bond carries an annual interest payment of $108 and is currently selling for $940. Airborne is in a 30 percent tax bracket. Compute the yield to maturity on..

Loan origination fee and compensating balance requirement : You are considering borrowing 1 million SEK for one month at an APR of 12%. The bank will require a (no-interest) compensating balance of 2% of the face value of the loan and will charge a 4000 SEK loan origination fee. Which total amount you must bo..

All cash flows generated by the real estate : Assume that the price of real estate is determined by P=PV(all cash flows generated by the real estate). After you have graduated you work for some years and can save some money. If discount rate is 1% lower than 3.5% what is the price of the house? ..

Zero-coupon bond with a yield to maturity : Suppose you purchase a 30-year, SEK 10,000 par value, zero-coupon bond with a yield to maturity (YTM) of 4.4%. You hold the bond for 5 years before selling it. What is the price of the bond when you buy it? If the bond’s yield to maturity increases b..

The incremental free cash flow : Two years ago the Krusty Krab Restaurant purchased a grill for $50,000. The owner, Eugene Krabs, has learned that a new grill is available that will cook Krabby Patties twice as fast as the existing grill. The incremental free cash flow that the Krus..

User Account

All Pages