Old MathJax webview

Old MathJax webview

What do lenders require, and what kind of debt costs the company? The cost of debt that is relevant when companies are evaluating new investment projects is the marginal cost of the new debt to be raised to finance the new project. Consider the case of Peaceful Book Binding Company (PBBC): Peaceful Book Binding Company is considering issuing a new 25-year debt issue that would pay an annual coupon payment of $75. Each bond in the issue would carry a $1,000 par value and would be expected to be sold for a price equal to its par value. ctory PBBC's CFO has pointed out that the firm would incur a flotation cost of 2% when initially Issuing the bond issue. Remember, the flotation costs will be the proceeds the firm will receive after issuing its new bonds. The firm's marginal federal-plus-state tax rate is 30%. To see the effect of flotation costs on PBBC's after-tax cost of debt (generic), calculate the after-tax cost of the firm's debt issue with and without its flotation costs, and select the correct after-tax costs (in percentage form): After-tax cost of debt without flotation costs After-tax cost of debt with flotation cost: debt, and it is different from the average cost of capital raised in the past. This is the cost of Grade It Now Save & Continue Continue without saving The cost of debt that is relevant when companies are evaluating new Investment projects is the marginal cost of the new debt to be raised to finance the new project. Consider the case of Peaceful Book Binding Company (PBBC): Peaceful Book Binding Company is considering issuing a new 25-year debt issue that would pay an annual coupon payment of $75. Each bond in the issue would carry a $1,000 par value and would be expected to be sold for a price equal to its par value. PBBC's CFO has pointed out that the firm would incur a flotation cost of 2% when initially issuing the bond issue. Remember, the flotation costs will be the proceeds the firm will receive after issuing its new bonds. The firm's marginal federal-plus-state tax rate is 30%. To see the effect of flotation costs on PBBC's after-tax cost of debt (generic), calculate the after-tax cost of the firm's debt issue with and without its flotation costs, and select the correct after-tax costs (in percentage form): After-tax cost of debt without flotation cost: After-tax cost of debt with flotation cost: This is the cost of debt, and it is different from the average cost of capital raised in the past. Continue payment of $75 bond in the issue would carry a $1,000 par value and would be expected to be sold for a price equal to its par value. PBBC's CFO has pointed out that the firm would incur a flotation cost of 2% when initially issuing the bond issue. Remember, the flota the proceeds the firm will receive after issuing its new bonds. The firm's marginal federal-plus-state tax rate subtracted from flotation costs on PBBC's after-tax cost of debt (generic), calculate the after-tax cost of the firm's debt issue with select the correct after-tax costs (in percentage form): added to After-tax cost of debt without flotation cost: After-tax cost of debt with flotation cost: This is the cost of debt, and it is different from the average cost of capital raised in the past. Grade It Now Sav Contin Juld be expected to be sold for a price equal to its par value. PBBC's CFO has pointed out that the firm would incur a flotation cost of 2% when initially Issuing the bond issue. Remember, tt the proceeds the firm will 4.7250% er issuing its new bonds. The firm's marginal federal-plus-state ta 4.4625% To see the effect of flotation costs on PBBC's after debt (generic), calculate the after-tax cost of the firm's debt issu flotation costs, and select the correct after-tax co 4.2000% ntage form): 5.2500% After-tax cost of debt without flotation cost: After-tax cost of debt with flotation cost: debt, and it is different from the average cost of capital raised in the past. This is the cost of Grade It Now PBBC's CFO has pointed out that the firm would incur a flotation cost of 2% when initially issuing the bond issue. Remember, the the proceeds the firm will receive after issuing its new bonds. The firm's marginal federal-plus-state tax 4.7250% To see the effect of flotation costs on PBBC's after debt (generic), calculate the after-tax cost of the firm's debt issue Flotation costs, and select the correct after-tax co: 5.5125% ntage form): 4.9875% After-tax cost of debt without flotation cost: 5.3776% After-tax cost of debt with flotation cost: his is the cost of debt, and it is different from the average cost of capital raised in the past. Grade It Now the firm will receive after issuing its new bonds. The firm's marginal federal-plus- To see the effect of flotation costs on PBBC's after-tax cost of debt (generic), calculate the after-tax cost of the firm's a flotation costs, and select the correct after-tax costs (in percentage form): After-tax cost of flotation cost: new After-tax cost of tation cost: embedded This is the cost of debt, and it is different from the average cost of capital raised in the past. Grade It Now BOOKS