Allied Materials needs $8 million in new capital for expanded compositesmanufacturing. It is offering small-denomination corporate bonds at a deepdiscount price of $800 for a 4% $1000 face value bond that matures in 20 years and pays the dividend semiannually. Find the nominal and effective annual rates, compounded semiannually, that Allied is paying an investor.
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Allied Materials needs $8 million in new capital for expanded composites
manufacturing. It is offering small-denomination corporate bonds at a deep
discount price of $800 for a 4% $1000 face
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- A firm currently is an all-equity firm with a market value of $30,000,000. The firm is contemplating selling $15,000,000 in bonds and using the proceeds to repurchase equity. The bonds promise an 8% interest payment at the end of each year. The bonds are structured so that the firm will pay exactly $5,000,000 of the principal back at the end of each of the second year, fourth year, and sixth year, and thus the bonds will be fully retired at the end of the sixth year. The corporate tax rate is 40% and there are no personal taxes. What will the market value of the firm be the moment after this deal is announced?Carraway Seed Company is issuing a $1,000 par value bond that pays 8 percent annual interest and matures in 9 years. Investors are willing to pay $935 for the bond. Flotation costs will be 9 percent of market value. The company is in a 30 percent tax bracket. What will be the firm's after-tax cost of debt on the bond? The firm's after-tax cost of debt on the bond will beLLC International is issuing a $2,000 par value bond that pays 8 percent annual interest and matures in 10 years. Investors are willing to pay $1,800 for the bond. Floatation costs will be 4 percent of market value. The Company is in a 20 percent tax bracket. What will be the firm’s after-tax cost of debt on the bond??
- Carraway Seed Company is issuing a $1,000 par value bond that pays 7 percent annual interest and matures in 15 years. Investors are willing to pay $850 for the bond. Floatation costs will be 3 percent of market value. The company is in a 21 percent tax bracket. What will be the firm’s after-tax cost of debt on the bond?Universal Manufacturing plans to issue long-term bonds to raise funds to support future expansion. The company has existing bonds outstanding that are similar to the new bonds it expects to issue. The existing bonds have a face value equal to $1,000, have a coupon rate of interest equal to 5 percent (semiannual payments), and mature in 14 years. These bonds are currently selling for $1,084 each. Universal’s marginal tax rate is 35 percent. (a) What should be the coupon rate on the new bond issue? (b) What is Universal’s after-tax cost of debt?Orange Ltd is a AAA credit rating company and plans to raise new capital for its new project. The company will use both debt and equity instruments to fund the new project. Orange Ltd will issue 100 new units, 10-year bonds, each bond with a face value of $1000. Each bond will pay a 10% per annum coupon to be paid semi-annually. Currently each bond can be purchased at a price of $950. Previously, Orange Ltd had never issue bonds. Orange Ltd will issue 100 new units of ordinary shares to add to the current 900 units. The current share has a price of $30 each with last year’s dividend at $1.50 per share. The growth rate for earnings and dividends is estimated to be 10% per annum. Orange Ltd will issue 200 new units of preference shares is currently selling at $45 per share to add to the current 800 shares. The preference shares carry a yearly dividend of $4.00 per share. The flotation costs are 1% of the selling price for the preference shares. The relevant corporate tax rate is 30%.…
- Orange Ltd is a AAA credit rating company and plans to raise new capital for its new project. The company will use both debt and equity instruments to fund the new project. Orange Ltd will issue 100 new units, 10-year bonds, each bond with a face value of $1000. Each bond will pay a 10% per annum coupon to be paid semi-annually. Currently each bond can be purchased at a price of $950. Previously, Orange Ltd had never issue bonds. Orange Ltd will issue 100 new units of ordinary shares to add to the current 900 units. The current share has a price of $30 each with last year’s dividend at $1.50 per share. The growth rate for earnings and dividends is estimated to be 10% per annum. Orange Ltd will issue 200 new units of preference shares is currently selling at $45 per share to add to the current 800 shares. The preference shares carry a yearly dividend of $4.00 per share. The flotation costs are 1% of the selling price for the preference shares. The relevant corporate tax rate is 30%.…Sincere Stationary Corporation needs to raise $500,000 to improve its manufacturing plant. It has decided to issue a $1,000 par value bond with an annual coupon rate 10.0 percent with interest paid semiannually and a 10-year maturity. Investors require a return of 9.0 percent. A. Compute the market value of the bonds B. How many bonds will the firm have to issue to receive the needed funds C. What is the firms after-tax cost of debt if the firms tax rate is 34 percentABC company will contract a new loan in the sum of $2,000,000 that is secured by machinery and the loan has an interest rate of 6 percent. The company has also issued 4,000 new bond issues with an 8 percent coupon, paid semi-annually, and matures in 10 years. The bonds were sold at par and incurred a floatation cost of 2 percent per issue. 1. Does the New loan have anything to do with calculating the cost of debt? 2. Should the new loan be considered in the calculation of the weighted average cost of capital (WACC) of the company? if so how should it be added to the WACC formula.
- Global Products plans to issue long-term bonds to raise funds to finance its growth. The company has existing bonds outstanding that are similar to the new bonds it expects to issue. The existing bonds, which have a face value equal to $1,000 and a coupon rate of interest equal to 7 percent (semiannual payments), mature in 20 years. These bonds are currently selling for $949 each. Global's marginal tax rate is 40 percent. a. What should be the coupon rate on the new bond issue? Round your answer to one decimal place. 3.7 eBook 2.2 % b. What is Global's after-tax cost of debt? Round your answer to one decimal place. %Russell Container Corporation has a RM1,000 par value bonds outstanding with 20 years to maturity. The bond carries an annual interest payment of RM95 and is currently selling for RM920 per bond. Russell Corp. is in a 25 percent tax bracket. The firm wishes to know the after-tax 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. i. Compute the yield to maturity on the old issue and use this as the yield for the new issue. ii. Make the appropriate tax adjustment to determine the after-tax cost of debt.(Cost of debt) Carraway Seed Company is issuing a $1,000 par value bond that pays 8 percent annual interest and matures in 9 years. Investors are willing to pay $935 for the bond. Flotation costs will be 9 percent of market value. The company is in a 30 percent tax bracket. What will be the firm's after-tax cost of debt on the bond? The firm's after-tax cost of debt on the bond will be %. (Round to two decimal places.)