Dallas Inc. is considering issuing long-term debt. The debt would have a 30-year maturity and a 10% coupon rate with an annual payment. If the firm can sell this debt for $950 today, and its tax rate is 35%, what is the component cost of debt for use in the WACC calculation?
a. 10.00%
b. 10.56%
c. 6.86%
d. 6.50%
e. 7.23%
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Ответ:
c. 6.86%
Explanation:
The computation of the cost of debt is shown below:
Here we applied the rate formula
Given that
NPER = 30
PMT = $1,000 × 10% = $100
Assuming future value be $1,000
PV = $950
The formula is shown below:
= RATE(NPER;PMT;PV;FV;TYPE)
The present value should be in negative
After applying the above formula, the rate is 10.55%
Now the after tax cost of debt is
= 10.55% × (1 - 0.35)
= 6.86%
Hence, the correct option is c.
Ответ:
seller's market
Explanation: