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Waller, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 16 years to maturity that is quoted at 100 percent of face value. The issue makes semiannual payments and has an embedded cost of 6 percent annually.
a) What is the company's pretax cost of debt? (Do not round your intermediate calculations.)
b) If the tax rate is 32 percent, what is the aftertax cost of debt? (Do not round your intermediate calculations.)
Suppose you take out a 8-year loan at an interest rate of 8.7 percent convertible monthly. You will make monthly payments, with your first payment coming in one month. Your first payment will be for 800 dollars, and your payments will increase by 21 ..
A Treasury bond that matures in 10 years has a yield of 3%. A 10-year corporate bond has a yield of 8%. Assume that the liquidity premium on the corporate bond is 0.4%. What is the default risk premium on the corporate bond?
Thornley Machines is considering a 3-year project with an initial cost of $1,050,000. The project will not directly produce any sales but will reduce operating costs by $600,000 a year. The equipment is depreciated straight-line to a zero book value ..
A 15-year, 14% semiannual coupon bond with a par value of $1,000 may be called in 4 years at a call price of $1,075. The bond sells for $1,050. What is the bond's yield to maturity? What is the bond's current yield? What is the bond's capital gain or..
Mini Case Analysis: Aguilera Acoustics, Inc. (AAI), projects unit sales for a new seven-octave voice emulation implants as follows: Production of the implants will require $1,500,000 in net working capital to start and additional net working capital ..
Of the capital budgeting techniques discussed, which works equally well with normal and non-normal cash flows and with independent and mutually exclusive project?
Liddy Products, Inc. just issued 10-year, 8% coupon bonds at par. Outstanding Limbaugh Corp. bonds, which have a maturity of 10 years, sell at a premium to par and are viewed by investors as having the same risk as the Liddy bonds. Therefore, it must..
Find the present value of the following cash flows using an interest rate of 7% per year: twenty annual cash flows of $600 each, occurring at the end of each year with the first cash flow one year from today, plus a one-time cash flow of $6,000 occur..
Compute the internal rate of return on both projects. Compute the profitability index of both projects. Compute the payback period on both projects.
You invested $10,000 in a mutual fund at the beginning of the year when the NAV was $32.24. At the end of the year the fund paid $.24 in short-term distributions and $.41 in long-term distributions. If the NAV of the fund at the end of the year was $..
Doctors-On-Call, a newly formed medical group, just paid a dividend of $.50. The company's dividend is expected to grow at a 20% rate for the next 5 years and at a 3% rate thereafter. What is the value of the stock if the appropriate discount rate is..
You have the opportunity to purchase an investment that will generate annual cash flows of $12,250 per year for the next 19 years. If your required rate of return on this investment is 7.26%, how much is the investment worth?
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