Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. accounting
  3. great lakes packing has two bond issues outstandin

Great Lakes Packing has two bond issues outstanding. The firstissue has a coupon rate...

Free

90.2K

Verified Solution

Question

Accounting

Great Lakes Packing has two bond issues outstanding. The firstissue has a coupon rate of 3.72 percent, a par value of $2,000 perbond, matures in 7 years, has a total face value of $4.7 million,and is quoted at 104 percent of face value. The second issue has acoupon rate of 6.49 percent, a par value of $1,000 per bond,matures in 19 years, has a total face value of $9.0 million, and isquoted at 96 percent of face value. Both bonds pay interestsemiannually. The company's tax rate is 39 percent. What is thefirm's weighted average aftertax cost of debt?

a. 3.36%
b. 5.50%
c. 3.03%
d. 3.20%
e. 4.43%

Answer & Explanation Solved by verified expert
4.5 Ratings (1091 Votes)

Correct option is: a. 3.36%
Market Value Weight YTM WACC
First Issue $       48,88,000                                0.3613 1.88% 0.68%
Second Issue $       86,40,000                                0.6387 4.19% 2.68%
$   1,35,28,000 3.36%
Workings:
Market Value Weight YTM WACC
First Issue 4700000*1.04 $4888000 / $13528000 =RATE(7*2,37.2/2,-1040,1000)*2*(1-0.39) 0.3613 X 1.88%
Second Issue 9000000*0.96 $8640000 / $13528000 =RATE(19*2,64.9/2,-960,1000)*2*(1-0.39) 0.6387 X 4.19%

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Transcribed Image Text

In: AccountingGreat Lakes Packing has two bond issues outstanding. The firstissue has a coupon rate of...Great Lakes Packing has two bond issues outstanding. The firstissue has a coupon rate of 3.72 percent, a par value of $2,000 perbond, matures in 7 years, has a total face value of $4.7 million,and is quoted at 104 percent of face value. The second issue has acoupon rate of 6.49 percent, a par value of $1,000 per bond,matures in 19 years, has a total face value of $9.0 million, and isquoted at 96 percent of face value. Both bonds pay interestsemiannually. The company's tax rate is 39 percent. What is thefirm's weighted average aftertax cost of debt?a. 3.36%b. 5.50%c. 3.03%d. 3.20%e. 4.43%

Other questions asked by students

Q

Mr. L. works with pesticides and is accidentally exposed to a nicotinic agonist. Focusing on motor output...

Medical Sciences
Q

USING USA IBC CH.9 1.            Name the standard which governs all aspects of concrete; materials used to...

Civil Engineering
Q

Typically, McDonald’s produces menu items in advance of customer orders based on anticipated demand. In contrast, Burger...

General Management
Q

Match the following terms to it s best descriptor each descriptor should be used only...

Biology
Q

The removal of all life forms from inanim sterilization decontamination degerming disinfection

Biology
Q

Use the linear approximation of the function f approximate the number 9 08 3 2556...

Calculus
Q

DETAILS 9 0 1 Points PREVIOUS ANSW Find the area of the region that lies...

Calculus
Q

Let 8 be an angle in standard position. Name the quadrant in which 0 lies.sin?...

Algebra
Q

Exercise 12A-7 Customer Latitude and Pricing [LO12-9] The postal service of St. Vincent, an island...

Accounting
Q

Paige, age 17, is a dependent of her parents. Paige earned $3,900 pet sitting and...

Accounting
Q

Division A manufactures electronic circuit boards that can be sold to Division B of the...

Accounting
Q

Data table Data table

Accounting