• 100% Satisfaction Guarantee

Linda_us, Finance, Accounts & Homework Tutor
Category: Homework
Satisfied Customers: 7290
Experience:  Post Graduate Diploma in Management (MBA)
19873544
Linda_us is online now

# 9-10 / 9-9 (cost of debt) Sincere stationery corp needs to

### Resolved Question:

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: 4 years ago.
Category: Homework
Expert:  Linda_us replied 4 years ago.
Thanks for requesting me. I am working on it.

Regards

Linda
Expert:  Linda_us replied 4 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 4 years ago.

You need to spend \$3 to view this post. Add Funds to your account and buy credits.
Linda_us, Finance, Accounts & Homework Tutor
Category: Homework
Satisfied Customers: 7290
Experience: Post Graduate Diploma in Management (MBA)
Customer: replied 4 years ago.
Hey Linda where is the answer for 9-10 / 9-9??
Expert:  Linda_us replied 4 years ago.

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 4 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 4 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 4 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 4 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?

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

### What Customers are Saying:

• Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
< Previous | Next >
• Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
• This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
• Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA
• I couldn't be more satisfied! This is the site I will always come to when I need a second opinion. Justin Kernersville, NC
• Just let me say that this encounter has been entirely professional and most helpful. I liked that I could ask additional questions and get answered in a very short turn around. Esther Woodstock, NY
• Thank you so much for taking your time and knowledge to support my concerns. Not only did you answer my questions, you even took it a step further with replying with more pertinent information I needed to know. Robin Elkton, Maryland
• He answered my question promptly and gave me accurate, detailed information. If all of your experts are half as good, you have a great thing going here. Diane Dallas, TX

• ### LogicPro

#### Satisfied Customers:

4925
Expert in Java C++ C C# VB Javascript Design SQL HTML
< Last | Next >

### LogicPro

#### Satisfied Customers:

4925
Expert in Java C++ C C# VB Javascript Design SQL HTML

### Manal Elkhoshkhany

#### Satisfied Customers:

4538
More than 5000 online tutoring sessions.

### Linda_us

#### Satisfied Customers:

3138
Post Graduate Diploma in Management (MBA)

### Chris M.

#### Satisfied Customers:

2602
Master's Degree, strong math and writing skills, experience in one-on-one tutoring (college English)

### F. Naz

#### Satisfied Customers:

2126
Experience with chartered accountancy

### Bizhelp

#### Satisfied Customers:

1887
Bachelors Degree and CPA with Accounting work experience