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5. (Cost of borrowing alternatives) Exxon Mobil has a 34% tax

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5. (Cost of borrowing alternatives) Exxon Mobil has a 34% tax rate and has decided to issue $100 million of seven-year debt. It has three alternatives. A U.S. public offering would require an 8% coupon with interest payable semiannually and $900,000 of flotation expense. A U.S. private placement would require an 8-3/8% coupon with interest payable semiannually and $500,000 of flotation expense. A Eurobond offering would require an 8-1/8% coupon with interest payable annually and $1,100,000 of flotation expense.
a. Calculate the after-tax cost of borrowing for each alternative.
b. Which alternative has the lowest cost of borrowing?

C1. (Cost of borrowing) A firm issues a 10-year debt obligation that bears a 12% coupon rate and gives the investor the right to put the bond back to the issuer at the end of the fifth year at 103% of its face amount. The issue has no sinking fund. Interest is paid semiannually. The issuer’s tax rate is 34%.
a. Calculate the after-tax cost of debt, assuming the debt remains outstanding until maturity.
b. Calculate the after-tax cost of debt, assuming investors put the bond back to the firm at the end of the fifth year. (Note: Any unamortized issuance expenses and any redemption premium can be deducted for tax purposes in the year of redemption.)


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Submitted: 4 years ago.
Category: Homework
Expert:  Stephen, MBA replied 4 years ago.

Hi,

When do you need this by?

Steve

Customer: replied 4 years ago.
EARLY EVENING SO THAT I CAN STUDY SO I CAN HANDLE THE TEST I NEED TO TAKE BUT RIGHT NOW I AM CONCERNED THAT I CAN NOT ANSWER THE SAMPLES
Expert:  Stephen, MBA replied 4 years ago.
Ok I will get it done for you by 5pm eastern. Please check back when you get a notification from justanswer that I have responded.
Customer: replied 4 years ago.
THAT IS GREAT AND YOU WILL EXPLAIN HOW YOU GOT TO THE ANSWER THAT WILL ALLOW ME TO STUDY AND FOLLOW YOUR FOOTSTEPS IN PREP FOR THE TEST IN THE MORNING?
Expert:  Stephen, MBA replied 4 years ago.
Sure no problem.
Customer: replied 4 years ago.
THANK YOU
Expert:  Manal Elkhoshkhany replied 4 years ago.
THIS ANSWER IS LOCKED!

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Manal Elkhoshkhany, Tutor
Category: Homework
Satisfied Customers: 9453
Experience: More than 5000 online tutoring sessions.
Manal Elkhoshkhany and 3 other Homework Specialists are ready to help you
Customer: replied 4 years ago.
I thought Stephen was responding because he was going to explain how to get to the answer...I am a wrong this is the answer I am sure just still not sure how to get to it on my own
Expert:  Manal Elkhoshkhany replied 4 years ago.

Hello

 

The way Just Answer works is that as long as the question has not been answered and no one was specifically requested then any expert can post a solution.

If you prefer to wait for Stephen then please do, there is no problem at all. I have included the steps for answering the question yet if you'd rather wait, then please wait for him to post a solution

 

All the best

Customer: replied 4 years ago.
No that is fine...sorry first time...I just did not see the steps.
I will return and look again.
Meant no disrespect
Expert:  Manal Elkhoshkhany replied 4 years ago.

Not at all, there is no disrespect at all. I am sorry if that is what you understood from my response. All I meant to say is that if you want to wait for the other expert because he was talking to you in the beginning, then there is no problem. What is important for us here at JA is to have satisfied customers

 

Wishing you all the best

Customer: replied 4 years ago.
Thank you!

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