1 out of 1 points

The 8 percent annual coupon bonds of the ABC Co. are selling for $880.76. The bonds mature in 10 years. The bonds have a par value of $1,000 and payments are made semi-annually? What is the before-tax cost of debt?

Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box.

Selected Answer:

9.91

Correct Answer:

9.91

Answer range +/-

0.05 (9.86 - 9.96)

Response Feedback:

NPER = 10* 2

RATE = ? * 2 = Answer = 4.953 * 2 = 9.91%

PV = -880.76

PMT = 1000 * 8%/2 = 40

FV = 1000

Question 2

1 out of 1 points

ABC Industries will pay a dividend of $1 next year on their common stock. The company predicts that the dividend will increase by 5 percent each

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Selected Answer:

18.29

Correct Answer:

18.29 ± 0.5%

Response Feedback:

MV of Common Stock = common shares outstanding * share price

MV of Preferred Stock = preferred shares outstanding * share price

MV of Bonds = bonds outstanding * bond price

Weight of Preferred stock in capital structure = MV of Pref Stock/ (MV of Common Stock + MV of Pref Stock + MV of Bonds)

Question 11

1 out of 1 points

The 8 percent annual coupon bonds of the ABC Co. are selling for $1,080.69. The bonds mature in 10 years. The bonds have a par value of $1,000. What is the before-tax cost of debt?

Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box.

Selected Answer:

6.86

Correct Answer:

6.86

Answer range +/-

0.05 (6.81 - 6.91)

Response Feedback:

NPER = 10

RATE = ? = Answer = 6.86

PV = -1080.69

PMT = 1000 * 8% = 80

FV = 1000

Question 12

1 out of 1 points

Several years ago, the ABC Company sold a $1,000 par value bond that now has 20 years to maturity and a 7.00% annual coupon that is paid semiannually. The bond currently sells for $925 and the company’s tax rate is 40%. What is the after-tax cost of debt?

Selected Answer:

4.65

Correct Answer:

4.65

Answer range +/-

0.05 (4.60 - 4.70)

Response Feedback:

Step 1: Solve for before-tax cost of debt

NPER = 20*2 = 40

RATE = ? = 3.87 * 2 = 7.74%

PV = -925

PMT = 1000*7%/2 = 35

FV = 1000

Step 2: Solve for after-tax cost of debt

=