In order to determine your cost of debt, you decided to look at your long...
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In order to determine your cost of debt, you decided to look at your long term debt, which is structured as a single 20yr bond with semi-annual coupons, a coupon rate of 10%, and is currently trading at 83%.
1. What is your cost of debt?
2. ) What is your after-tax cost of debt?
Income Statement 2015 40% Sales COGS Other expenses Depreciation EBIT Interest Taxable income Taxes (40%) Net income $43,000,000 $30,000,000 $5,000,000 $2,000,000 $6,000,000 $2,000,000 $4,000,000 Taxes Shares Outstanding 1,000,000 $1,600,000 $2,400,000 $600,000 $1,800,000 Dividends Add to RE Balance Sheet, Dec 31, 2015 Assets Liabilities & Owners' Equi Current Assets Current Liabilities Cash $500,000 Accounts Receivable $1,000,000 $2,000,000 $3,500,000 Accounts Payable $1,000,000 $3,000,000 $4,000,000 $10,000,000 Notes Payable Total CL Long Term Debt Inventory Total CA Fixed Assets Net PP&E Owners' Equity $25,000,000 Common Stock $6,500,000 Retained Earnings S8,000,000 Total Equity 14 500000 Total L & OE Total Assets $28,500,000 $28,500,000
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