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P 9 - 2 Flotation costs and the cost of debt Currently, Jackson Real Estate Inc. can sell 1 0 - year, $ 1 0
P Flotation costs and the cost of debt Currently, Jackson Real Estate Inc. can sell year, $parvalue bonds paying annual interest at a coupon rate. Jackson can sell its bonds for $ each. Jackson will incur flotation costs of $ per bond in this process. The firm is in the tax bracket. a Find the net proceeds from sale of the bond, b Show the cash flow from the firm's point of view over the maturity of the bond. c Calculate the beforetax and aftertax costs of debt. d Use the approximation formula to estimate the beforetax and aftertax costs of debt. e Compare the costs of debt calculated in parts and Which approach do you prefer? Why? Personal Finance Problem P Flotation costs and the cost of debt In March of PepsiCo, Inc. PEP sold $ million worth of year coupon bonds that pay semiannual interest. At the time the bonds were issued, the market paid $ per bond and the flotation cost was $ per bond. Pepsi's corporate tax rate is a Ignoring flotation costs, what is Pepsi's beforetax and aftertax costs of debt? b Considering flotation costs, what is Pepsi's beforetax and aftertax costs of debt? P Beforetax cost of debt and aftertax cost of debt Jim Paige is opening his own restaurant, and he is taking out a year mortgage. Jim will borrow $ from a bank and to repay the loan, he will make monthly payments principal and interest of $ per month over the next years. Jim is in the tax bracket. a What is the beforetax interest rate per year on Jim's loan? b What is the aftertax interest rate that Jim is paying? P Aftertax cost of debt For each of the following parvalue bonds, assuming annual interest payment and a tax rate, calculate the aftertax cost of debt.
P Flotation costs and the cost of debt Currently, Jackson Real Estate Inc. can sell
year, $parvalue bonds paying annual interest at a coupon rate. Jackson
can sell its bonds for $ each. Jackson will incur flotation costs of $ per
bond in this process. The firm is in the tax bracket.
a Find the net proceeds from sale of the bond,
b Show the cash flow from the firm's point of view over the maturity of the bond.
c Calculate the beforetax and aftertax costs of debt.
d Use the approximation formula to estimate the beforetax and aftertax costs of
debt.
e Compare the costs of debt calculated in parts and Which approach do you
prefer? Why?
Personal Finance Problem
P Flotation costs and the cost of debt In March of PepsiCo, Inc. PEP sold $
million worth of year coupon bonds that pay semiannual interest. At
the time the bonds were issued, the market paid $ per bond and the flotation
cost was $ per bond. Pepsi's corporate tax rate is
a Ignoring flotation costs, what is Pepsi's beforetax and aftertax costs of debt?
b Considering flotation costs, what is Pepsi's beforetax and aftertax costs of debt?
P Beforetax cost of debt and aftertax cost of debt Jim Paige is opening his own
restaurant, and he is taking out a year mortgage. Jim will borrow $
from a bank and to repay the loan, he will make monthly payments principal
and interest of $ per month over the next years. Jim is in the tax
bracket.
a What is the beforetax interest rate per year on Jim's loan?
b What is the aftertax interest rate that Jim is paying?
P Aftertax cost of debt For each of the following parvalue bonds, assuming
annual interest payment and a tax rate, calculate the aftertax cost of debt.
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