Tax adjustment to determine the aftertax cost of debt

Assignment Help Financial Management

Reference no: EM131020837

Russell Container Corporation has a $1,000 par value bond outstanding with 20 years to maturity. The bond carries an annual interest payment of $126 and is currently selling for $980 per bond. Russell Corp. 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.) 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.)

Reference no: EM131020837

Questions Cloud

Record the correcting entry for errors discovered : Prepare the appropriate correcting entry assuming the error was discovered in 2016 before the adjusting and closing entries. (Ignore income taxes.)

What is the total amount of interest that will pay : Jeff buys a house for $220,000. He makes a 10% down payment and nances the remaining balance with a 15 year mortgage. The annual interest rate is 2.875% and interest is compounded monthly. What is the total amount of interest that Jeff will pay?

Additional notes payable and use them to increase inventory : The Nelson Company has $1,000,000 in current assets and $400,000 in current liabilities. Its initial inventory level is $200,000, and it will raise funds as additional notes payable and use them to increase inventory. How much can Nelson's short-term..

What is washington-pacific expected rate of return : Washington-Pacific (W-P) invests $3 million to buy a tract of land and plant some young pine trees. The trees can be harvested in 14 years, at which time W-P plans to sell the forest at an expected price of $6 million. What is W-P's expected rate of ..

Tax adjustment to determine the aftertax cost of debt : Russell Container Corporation has a $1,000 par value bond outstanding with 20 years to maturity. The bond carries an annual interest payment of $126 and is currently selling for $980 per bond. Russell Corp. is in a 30 percent tax bracket. Make the ap..

The company expects to extract : The company expects to extract 1,090,000 tons of coal during a four-year period. During 2016, 259,000 tons were extracted and sold immediately.

Present value of an annuity : Find the present value of the following ordinary annuities. Round your answers to the nearest cent. (Notes: If you are using a financial calculator, you can enter the known values and then press the appropriate key to find the unknown variable. This ..

Treasury notes or the portfolio of zeroes : Suppose an investor would like to buy 200 Treasury notes. The investor wants notes with an annual coupon rate of 7%, a 3-year maturity, and semi-annual coupon payments. Now suppose there is a 3-year, 7% coupon rate Treasury note available that has a ..

Three key figures on the cash flow statement : Which of the three key figures on the Cash Flow Statement is the most important for assessing the financial health of the business? Select one: a. Cash flow from investing activities b. Cash flow from financing activities c. Cash flow from operating ..

User Account

All Pages