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Linda_us
Linda_us, Finance, Accounts & Homework Tutor
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Experience:  Post Graduate Diploma in Management (MBA)
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9-10 / 9-9 (cost of debt) Sincere stationery corp needs to

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9-10 / 9-9 (cost of debt) Sincere stationery corp needs to raise $500,000 to improve its manufacturing plant. It has decided to issue a $1,000 per value bond with a 14 percent annual coupon rate and a 10 year maturity. The investors require a 9 percent rate of return.

a. rework problem as follows: Assume an 8 percent coupon rate. What effect does changing the coupon rate have on the firm's after tax cost of capital?

b. Why is there a change?
Submitted: 2 years ago.
Category: Homework
Expert:  Linda_us replied 2 years ago.
Thanks for requesting me. I am working on it.

Regards

Linda
Expert:  Linda_us replied 2 years ago.


And is this the complete question for 9-9

(Cost of dept) Sincere Stationery Corporation needs to raise $500,000 to improve its manufacturing plant. It has decided to issue a $1,000 par value bond with a 14 percent annual coupon rate and a 10 year maturity. The investors require a 9 percent rate of return.

a. Compute the market value of the bonds.
b. What will the net price be if flotation costs are 10.5 percent of the market price?
c. How many bonds will the firm have to issue to receive the needed funds?
d. What is the firm’s after-tax cost of debt if its average tax rate is 25 percent and its marginal tax rate is 34 percent?

And

9-10


a. rework problem as follows: Assume an 8 percent coupon rate. What effect does changing the coupon rate have on the firm's after tax cost of capital?

b. Why is there a change?

Regards

Linda
Expert:  Linda_us replied 2 years ago.
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Linda_us, Finance, Accounts & Homework Tutor
Category: Homework
Satisfied Customers: 7010
Experience: Post Graduate Diploma in Management (MBA)
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Customer: replied 2 years ago.
Hey Linda where is the answer for 9-10 / 9-9??
Expert:  Linda_us replied 2 years ago.
It answered above

9-9

(Cost of dept) Sincere Stationery Corporation needs to raise $500,000 to improve its manufacturing plant. It has decided to issue a $1,000 par value bond with a 14 percent annual coupon rate and a 10 year maturity. The investors require a 9 percent rate of return.

a. Compute the market value of the bonds.

PMT

140

NPER

10

FV

1000

Rate

9.00%

Value

$1,320.88


b. What will the net price be if flotation costs are 10.5 percent of the market price?

Net Price = 1320.88*(1-.105) =$1182.19


c. How many bonds will the firm have to issue to receive the needed funds?

Number of Bonds = 500000/1182.19 = 423 Bonds


d. What is the firm’s after-tax cost of debt if its average tax rate is 25 percent and its marginal tax rate is 34 percent?

PV

1182.89

PMT

140

NPER

10

FV

1000

Rate (Annual)

10.91%

After tax Cost = 10.91*(1-.34) = 7.20%
Expert:  Linda_us replied 2 years ago.
9-10

a. rework problem as follows: Assume an 8 percent coupon rate. What effect does changing the coupon rate have on the firm's after tax cost of capital?

a) Compute the market value of the bonds.

PMT

80

NPER

10

FV

1000

Rate

9.00%

Value

$935.82




b. What will the net price be if flotation costs are 10.5 percent of the market price?


Net Price = 935.82*(1-.105) =$837.56

c.How many bonds will the firm have to issue to receive the needed funds?

Number of Bonds = 500000/837.56 = 597 Bonds

d. What is the firm’s after-tax cost of debt if its average tax rate is 25 percent and its marginal tax rate is 34 percent?

PV

837.56

PMT

80

NPER

10

FV

1000

Rate (Annual)

10.73%

After Tax cost of Debt = 10.73*(1-.34) = 7.08%

b. Why is there a change?

The after tax cost of debt decrease because of lower flotation cost since the value of bond is low.

Are you able to get it now?

Regards

Linda

Customer: replied 2 years ago.

Where is this answer at I'm confused??

 

a. rework problem as follows: Assume an 8 percent coupon rate. What effect does changing the coupon rate have on the firm's after tax cost of capital?

Customer: replied 2 years ago.

Linda This was the problem for 9-9 below and 9-10 questions are

 

a. rework problem as follows: Assume an 8 percent coupon rate. What effect does changing the coupon rate have on the firm's after tax cost of capital?

 

B. I see the answer for this!!

 

9-9 (cost of debt) Sincere stationery corp needs to raise $500,000 to improve its manufacturing plant. It has decided to issue a $1,000 per value bond with a 14 percent annual coupon rate and a 10 year maturity. The investors require a 9 percent rate of return.

Expert:  Linda_us replied 2 years ago.
Is question 9-9 as I have specified below or only as given above by you.

(Cost of dept) Sincere Stationery Corporation needs to raise $500,000 to improve its manufacturing plant. It has decided to issue a $1,000 par value bond with a 14 percent annual coupon rate and a 10 year maturity. The investors require a 9 percent rate of return.

a. Compute the market value of the bonds.
b. What will the net price be if flotation costs are 10.5 percent of the market price?
c. How many bonds will the firm have to issue to receive the needed funds?
d. What is the firm’s after-tax cost of debt if its average tax rate is 25 percent and its marginal tax rate is 34 percent?

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