Question
Kim Davis is in the 40 percent tax bracket, she is considering investing in HCA (taxable) bonds that carry a 12 percent interest rate. a.
Kim Davis is in the 40 percent tax bracket, she is considering investing in HCA (taxable) bonds that carry a 12 percent interest rate.
a. What is her after-tax yield (interest rate) on the bonds?
b. Suppose Twin Cities Memorial Hospital has issued tax-exempt bonds that have an interest rate of 6 percent.
c. With all else the same, should Kim buy the HCA or the Twin Cities bonds? With all else the same, what interest rate on the tax-exempt Twin Cities bonds would make Kim indifferent between these bonds and the HCA bonds?
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part a After tax yield Interest x 1tax rate 12 x 104 After tax yield 72 Part b Kim s...
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Financial Accounting
Authors: J. David Spiceland, Wayne Thomas, Don Herrmann
3rd edition
9780077506902, 78025540, 77506901, 978-0078025549
