PLEASE help me with these finance questions! PLEASE SHOW WORK!! P 13-5 (similar

Question

PLEASE help me with these finance questions! PLEASE SHOW WORK!!

P 13-5 (similar to) Question Help * Avicorp has a $13.2 million debt issue outstanding, with a 5.9% coupon rate. The debt has semi-annual coupons, the next coupon is due in six months, and the debt matures in five years. It is currently priced at 94% of par value. a. What is Avicorp's pre-tax cost of debt? Note: Compute the effective annual return. b. If Avicorp faces a 40% tax rate, what is its after-tax cost of debt? a. The cost of debt is | % per year. (Round to four decimal places.)

Explanation / Answer

13-5 Coupon = $       1,32,00,000 x 5.90% x 6/12 = $ 3,89,400 Par Value = $       1,32,00,000 Current Price = $       1,32,00,000 x 94% = $ 1,24,08,000 Semi annual period to mature = 5 x 2 = 10 Semi annual yield to maturity = (389400+((13200000-12408000)/10))/((13200000+12408000)/2) =           0.036598 Effective annual Yield to maturity = 0.036598 x 2 = 0.073196 a. Preatx cost of ebt = 7.3196% b. After tax cost of debt = 7.3196%*(1-0.40) = 4.3918% 13-14 Ste-1:Calculate cost of each component of WACC After tax cost of debt = 6%*(1-0.35) = 0.039 Cost of preferred stock = 2.47/35 =         0.071 Cost of common stock = Risk free return + Beta*Market risk premium = 2.4%+1.17*6.7% =                  0.102 Step-2:Calculate WACC WACC is sum of Cost of component and weight of compnenent of WACC Weght Cost a b a*b Debt 35%                        0.039                0.0137 Preferred stock 12%                        0.071                0.0085 Common Stock 53%                        0.102                0.0543 WACC                0.0764 Thus, WACC is 7.64%

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.