Question
QUESTION 1 To help finance a major expansion, Castro Chemical Company sold a noncallable bond several years ago that now has 12 years to maturity.
QUESTION 1
To help finance a major expansion, Castro Chemical Company sold a noncallable bond several years ago that now has 12 years to maturity. This bond has a 6.50% annual coupon, paid semiannually, sells at a price of $955, and has a par value of $1,000. If the firm's tax rate is 30%, what is the component cost of debt for use in the WACC calculation? Do not round your intermediate calculations.
QUESTION 2
Keys Printing plans to issue a $1,000 par value, 15-year noncallable bond with an 11.00% annual coupon, paid semiannually. The bond will be selling at $1,150. The company's marginal tax rate is 38.00%, but Congress is considering a change in the corporate tax rate to 21.00%. By how much would the component cost of debt used to calculate the WACC change if the new tax rate was adopted?
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