Estimate of the aftertax cost of debt

Assignment Help Financial Management
Reference no: EM131072295

Shanken Corp. issued a bond with a maturity of 20 years and a semiannual coupon rate of 6 percent 2 years ago. The bond currently sells for 92 percent of its face value. The book value of the debt issue is $40 million. In addition, the company has a second debt issue on the market, a zero coupon bond with 12 years left to maturity; the book value of this issue is $40 million and the bonds sell for 52 percent of par. The company’s tax rate is 40 percent. What is your best estimate of the aftertax cost of debt?

Reference no: EM131072295

Questions Cloud

Stock is consistent with these forecasts : Consider the following data for Nike Inc, in 2009 it had 19,250 million in sales with a 10% growth rate in 2010, but then slows by 1% to the long-run growth rate of 5% by 2015. Suppose you believe Nike's initial revenues growth rate will be between 7..
What is the nash equilibrium to this game : What is the Nash equilibrium to this game?
Rail cars per day in sum total over all products produced : Suppose that the capacity of Able plant is 62 rail cars per day in sum total over all products produced.
Which mortgage loan has the larger total cost : Consider the following pair of mortgage loan options for a ?$150, 000 mortgage. Which mortgage loan has the larger total cost? (closing costs? + the amount paid for points? + total cost of? interest)? By how? much? Mortgage A has a larger total cost ..
Estimate of the aftertax cost of debt : Shanken Corp. issued a bond with a maturity of 20 years and a semiannual coupon rate of 6 percent 2 years ago. The bond currently sells for 92 percent of its face value. The book value of the debt issue is $40 million. What is your best estimate of t..
The expected customer demand from able plant : Evaluate the policy of shipping an amount equal to the expected customer demand from Able plant to each of the other two plants each week.
Pay up for series of a-rated debentures : What is the maximum price that you would pay up for a series of A-rated debentures (i.e., corporate bonds) each with a face value of $1000, that promise to pay 32 more semi-annual coupons of $17.25 each at a yield to maturity of 2.91%? Please show ho..
Coupon yield-current yield and yield to maturity : Demonstrate that you understand the difference among coupon yield, current yield, and yield to maturity with the following illustration for Morgan Stanley debt, par value of $1000: current price of $1032, coupon rate of 4.2%, issue date of September ..
Does either player have a dominant strategy here : Does either player have a dominant strategy here?

Reviews

Write a Review

Financial Management Questions & Answers

  What is the amount of the expected disbursements

The Wire House purchases its inventory one quarter prior to the quarter of sale. The purchase price is 65 percent of the sales price. The accounts payable period is 45 days. The accounts payable balance at the beginning of Quarter 1 is $29,000. What ..

  What additional services or products would you suggest

What additional services or products would you suggest that the bank market to each of these customers? Discuss how the source of profitability will influence the choice of services and products that you recommend.

  What is valences share price

Valence Electronics has 217 million shares outstanding. It expects earnings at the end of the year of $760 million. Valence pays out 40% of its earnings in total?15% paid out as dividends and 25% used to repurchase shares. If Valence's earnings are e..

  Debt-preference shares and ordinary shares

Quest Exploration Ltd is trying to take advantage of the commodity boom by increasing its exploration activities. However, as a junior mining company it will need to raise additional capital over the coming year. Debt: Preference shares: Ordinary sha..

  Context of financial stakeholders for corporations

You are to initiate a discussion on the context in which corporations exist among the various stakeholders at issue. Identify three important stakeholders for a corporation and explain the role that each stakeholders plays within the corporation. Fur..

  Break-even point-what is the incremental profit

Schweser Satellites Inc. produces satellite earth stations that sell for $95,000 each. The firm's fixed costs, F, are $2 million, 50 earth stations are produced and sold each year, profits total $500,000; and the firm's assets (all equity financed) a..

  Weight of debt

Bennington Industrial Machines issued 154,000 zero coupon bonds seven years ago. The bonds originally had 30 years to maturity with a yield to maturity of 7.4 percent. Interest rates have recently increased, and the bonds now have a yield to maturity..

  How much money is expected to be collected

A company collects 25% of its sales during the month of sale, 65% one month after the sale, and 10% two months after the sale. The company expects sales of $50,000 in August, $80,000 in September, $90,000 in October, and $60,000 in November. How much..

  Explain how capital reduces banking risks

Explain how capital reduces banking risks. Discuss the importance of cash flows and economic (market) value rather than accounting value.

  What is the firms after-tax cost of debt

5 years ago, Barton Industries issued 25-year noncallable, semiannual bonds with a $1,200 face value and a 8% coupon, semiannual payment ($48 payment every 6 months). The bonds currently sell for $845.87. If the firm's marginal tax rate is 40%, what ..

  Occurs at the financial break-even point

Which one of these occurs at the financial break-even point?

  Which of these indicates that firm is efficient

When a firm's long-term debt-equity ratio is .98, the firm: If a firm's total debt ratio is greater than .5, then: Which of the following actions could improve a firm's current ratio if it is now less than 1.0? What is the residual income for a firm ..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd