Question

At the present time, Three Waters Company (TWC) has 20-year noncallable bonds with a face value...

At the present time, Three Waters Company (TWC) has 20-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,382.73 per bond, carry a coupon rate of 13%, and distribute annual coupon payments. The company incurs a federal-plus-state tax rate of 40%. If TWC wants to issue new debt, what would be a reasonable estimate for its after-tax cost of debt (rounded to two decimal places)?

5.31%

4.78%

6.37%

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Calculate the before tax cost of debt as follows:

Before tax cost of debt 8.8516%

After tax cost of debt 8.8516%*(1-40%) = 5.31%.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Omni Consumer Products Company (OCP) can borrow funds at an interest rate of 12.50% for a...
Omni Consumer Products Company (OCP) can borrow funds at an interest rate of 12.50% for a period of five years. Its marginal federal-plus-state tax rate is 40%. OCP’s after-tax cost of debt is (rounded to two decimal places). At the present time, Omni Consumer Products Company (OCP) has 20-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,181.96 per bond, carry a coupon rate of 13%, and distribute annual...
Western Gas & Electric Company (WGC) can borrow funds at an interest rate of 11.10% for a period of six years.
To calculate the after-tax cost of debt, multiply the before-tax cost of debt by  Western Gas & Electric Company (WGC) can borrow funds at an interest rate of 11.10% for a period of six years. Its marginal federal-plus-state tax rate is 25%. WGC’s after-tax cost of debt is ????? (rounded to two decimal places).At the present time, Western Gas & Electric Company (WGC) has 5-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current...
3. An overview of a firm's cost of debt The   is the interest rate that a...
3. An overview of a firm's cost of debt The   is the interest rate that a firm pays on any new debt financing. Water and Power Company (WPC) can borrow funds at an interest rate of 10.20% for a period of eight years. Its marginal federal-plus-state tax rate is 40%. WPC’s after-tax cost of debt is     (rounded to two decimal places). At the present time, Water and Power Company (WPC) has 15-year noncallable bonds with a face value of $1,000...
3. An overview of a firm's cost of debt To calculate the after-tax cost of debt,...
3. An overview of a firm's cost of debt To calculate the after-tax cost of debt, multiply the before-tax cost of debt by a) (1+T) b) (1-T) Western Gas & Electric Company (WGC) can borrow funds at an interest rate of 7.30% for a period of six years. Its marginal federal-plus-state tax rate is 35%. WGC’s after-tax cost of debt is (rounded to two decimal places). At the present time, Western Gas & Electric Company (WGC) has 5-year noncallable bonds...
For which capital component must you make a tax adjustment when calculating a firm’s weighted average...
For which capital component must you make a tax adjustment when calculating a firm’s weighted average cost of capital (WACC)? Preferred stock Debt Equity Water and Power Company (WPC) can borrow funds at an interest rate of 10.20% for a period of eight years. Its marginal federal-plus-state tax rate is 25%. WPC’s after-tax cost of debt is (10.20% , 6.50%, 8.42%, 7.65%) (rounded to two decimal places). At the present time, Water and Power Company (WPC) has 10-year noncallable bonds...
2. An overview of a firm's cost of debt For which capital component must you make...
2. An overview of a firm's cost of debt For which capital component must you make a tax adjustment when calculating a firm’s weighted average cost of capital (WACC)? Equity Debt Preferred stock Andalusian Limited (AL) can borrow funds at an interest rate of 12.50% for a period of six years. Its marginal federal-plus-state tax rate is 25%. AL’s after-tax cost of debt is ________. (rounded to two decimal places). At the present time, Andalusian Limited (AL) has 10-year noncallable...
5 years ago, Barton Industries issued 25-year noncallable, semiannual bonds with a $1,000 face value and...
5 years ago, Barton Industries issued 25-year noncallable, semiannual bonds with a $1,000 face value and a 11% coupon, semiannual payment ($55 payment every 6 months). The bonds currently sell for $844.87. If the firm's marginal tax rate is 25%, what is the firm's after-tax cost of debt?
Company B just issued 10-year zero-coupon bonds. The face value of the bond is €1000. If...
Company B just issued 10-year zero-coupon bonds. The face value of the bond is €1000. If those bonds sell for $553 what those bonds yield to maturity (YTM) is? Express your answer as percent.If the YTM doesn’t change what will be the price of those bonds next year? If this is the only bond issue that Company B has outstanding what is the after tax cost of debt of Company B? The tax rate is 30%.
A company has an outstanding issue of $1,000 face value bonds with a 9.5% annual coupon...
A company has an outstanding issue of $1,000 face value bonds with a 9.5% annual coupon and 20 years remaining until maturity. The bonds are currently selling at a price of 90 (90% of face value). An investment bank has advised that a new 20-year issue could be sold for a flotation cost of 5% of face value. The company is in the 35% tax bracket. a. Calculate investors’ required rate of return today. b. What annual coupon would have...
5 years ago, Barton Industries issued 25-year noncallable, semiannual bonds with a $1,000 face value and...
5 years ago, Barton Industries issued 25-year noncallable, semiannual bonds with a $1,000 face value and an 8% coupon, semiannual payment ($40 payment every 6 months). The bonds currently sell for $847.87. If the firm's marginal tax rate is 25%, what is the firm's after-tax cost of debt? Do not round intermediate calculations. Round your answer to two decimal places.
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT