29. Easy Slider Inc. sold a 15 year $1,000 face value bond with a 10 percent cou

Question

29. Easy Slider Inc. sold a 15 year $1,000 face value bond with a 10 percent coupon rate. Interest is paid annually. After flotation costs, Easy Slider received $928 per bond. Compute the after-tax cost of debt for these bonds if the firm's marginal tax rate is 40 percent. (Points : 3)        6.0%
       7.2%
       7.8%
       6.6% Question 30.30. For a company that is not planning to change its target capital structure, the proportions of debt and equity used in calculating the weighted cost of capital should be based on the current ____ weights of the individual components. (Points : 3)        book value
       market value
       replacement value
       accounting value Question 31.31. The cost of capital is (Points : 3)        the rate of return required by investors in the firm's securities
       the minimum rate of return required on new investments of high risk undertaken by the firm
       approximately 10 percent for most firms
       concerned with plant and equipment only Question 32.32. The CAPM assumes that the only risk of concern to the investor is ____, which is measured by ____. (Points : 3)        Unsystematic risk, beta
       Systematic risk, the return to the market portfolio
       Systematic risk, beta
       Unsystematic risk, the return to the market portfolio Question 33.33. For firms subject to the 34% marginal tax rate, the after-tax cost of ____ is roughly two-thirds the cost of preferred stock. (Points : 3)        retained earnings
       new common stock
       long-term debt
       retained earnings and new common stock 29. Easy Slider Inc. sold a 15 year $1,000 face value bond with a 10 percent coupon rate. Interest is paid annually. After flotation costs, Easy Slider received $928 per bond. Compute the after-tax cost of debt for these bonds if the firm's marginal tax rate is 40 percent. (Points : 3)        6.0%
       7.2%
       7.8%
       6.6%

Explanation / Answer

29 First let us calculate the the ytm of the bond which would be given as follows

Current Value =928

Coupn =100

term = 15 year

RATE(15,-100,928,-1000,0) = 11%

After tax rate of interest =11%*(1-.4) =6.6%

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