Tax rate 30%Semi-annual interest payments$1,000 face valueUse chart to find YTM

1. Use the information below to illustrate how debt serves as a tax shield.

a. Long-term debt, 400,000

b. Interest rate, 0.06

c. Revenues, 1,000,000

d. Operating expense, 500,000

Use the data below to answer questions 2-4.

Debt

a. Loan 1,000,000

b. i 0.055

c. Bonds issued 1,000

d. Price per bond 999

e. 30 yr. A rating -

2.What is the yield to maturity on the bond issue?

3.What are the weights the loan and bond issue contribute to the firm's debt?

4.What is the after-tax weighted average cost of debt?

Use the data below to answer questions 5-7.

Debt

a. Loan 420,000

b. i 0.045

c. Bonds issued 500

d. Price per bond 995

c. 30-yr CCC rating -

5.What is the yield to maturity on the bond issue?

6.What are the weights the loan and bond issue contribute to the firm's debt?

7.What is the after-tax weighted average cost of debt?