AXYZ Co's. bond has a $1,000 face value and a coupon rate of 6.2% paid annually. The firm's marginaltax rate is 35%. Assuming no flotation costs, what is the after-tax cost of debt for XYZ Co.?9.Wherekdtar =After tax cost of debtka kahu (1-t)kabe = Before tax cost of debtt Marginal tax rate in decimal formatx (1kdatWhat would be XYZ Co's. after tax cost of debt if corporate tax rates are reduced by 10% across theboard making XYZ Co's. marginal tax rate 25%?kdatx (1-_Based on these results, does a tax cut make debt more or less preferable than equity financing? Circleyour answerLESS PREFERABLEMORE PREFERABLE

Calculation of cost of debt after tax:Answer:Cost of debt after-tax rate is 4.03% and 4.65%, tax cut…

Answered: AXYZ Co's. bond has a $1,000 face value…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Similar questions

Austin's Cookies has a return on assets of 7.8 percent and a cost of equity of 11.9 percent. What is the pretax cost of debt if the debt–equity ratio is .72? Ignore taxes. Format as a percentage, round to two places past the decimal point, and format as "X.XX"
Ladder Works has debt outstanding with a coupon rate of 6 percent and a yield to maturity of 6.8 percent. What is the aftertax cost of debt if the tax rate is 21 percent? Assume all interest is tax deductible. 5.62% 5.82% 5.37% 4.86%
Calculate the aftertax cost of debt under each of the following conditions. (Do not round intermediate calculations. Round the final answers to 2 decimal places.) a b с Yield 8.5% 14.5% 12.0% Corporate tax rate 23% 37% 43% Cost of debt % % %
The cost of debt for Salalah Mills is 15.25% (effective rate) and its tax rate is 30.05% then what is the after tax cost of debt? Select one: O a. 10.66% O b. 12.50% O c. 10% d. None е. 10.60%
Harmony Sego has a tax rate of 21%, the interest rate on debt is 10%, and the WACC is 15%. If the debt ratio is 60% (i.e., the weight on debt), what is the expected rate of return to equity holders? O 12.50% O 22.50% O 25.65% O 21.25%
The after-tax cost of debt for a firm, which has a marginal tax rate of 28% is correctly calculated at 6%. Calculate the before-tax cost of debt. a. 6.0% b. 7.7% c. 10.0% d. 8.3%
A firm had a debt ratio of 0.85. The pretax cost of debt is 8% and the reqiured return on asset is 15.5%. What is the cost of equity if we factorin the firms tax rate of 24%? A) 19.53 B) 18.92 C) 21.57 D) 20.35 E) 20.96
Royal Jewelers Inc. has an aftertax cost of debt of 12.45 percent. With a tax rate of 40 percent, what can you assume the yield on the debt is? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) Yield %
Caddie Manufacturing has a target debt-equity ratio of .75. Its cost of equity is percent, and its pretax cost of debt is 7 percent. If the tax rate is 25 percent, what is 1 company's WACC? (Do not round intermediate calculations and enter your answer a percent rounded to 2 decimal places, e.g., 32.16.) WACC %
A firm has an ROE of 2%, a debt/equity ratio of 0.6, a tax rate of 30%, and pays an interest rate of 7% on its debt. What is its operating ROA? (Do not round intermediate calculations. Round your answer to 2 decimal places.) ROA %
Starset, Inc., has a target debt-equity ratio of .80. Its WACC is 9.1 percent, and the tax rate is 25 percent. a.If the company's cost of equity is 13 percent, what is its pretax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b.If instead you know that the aftertax cost of debt is 5.8 percent, what is the cost of equity?
Coco Kitchen has a WACC of 14%. It has 19% of return on equity, and 60% of debt-to-asset ratio (i.e., weight on debt). Assume tax equals 0, calculate the interest rate on the debt. O 9.90% O 11.14% O 10.67% O 6.50%

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