To help finance a major expansion, Castro Chemical Company sold a noncallable bond several years ago that now has 20 years to maturity. This bond has a 9.25% annual coupon, paid semiannually, sells at a price of $1,075, and has a par value of $1,000. If the firm's tax rate is 40%, what is the component cost of debt for use in the WACC calculation? (Please show your working steps)

A. 8.46%

B. 4.23%

C. 8.65%

D. 5.19%

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Elin HesselLv2

28 Sep 2019

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Related questions

To help finance a major expansion, Castro Chemical Company sold a noncallable bond several years ago that now has 20 years to maturity. This bond has a 9.25% annual coupon, paid semiannually, sells at a price of $1,075, and has a par value of $1,000. If the firm's tax rate is 40%, what is the component cost of debt for use in the WACC calculation?

Select one:

a. 5.08%

b. 4.58%

c. 5.33%

d. 4.35%

e. 4.83%

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Moerdyk Corporation's bonds have a 15-year maturity, a 7.25% semiannual coupon, and a par value of $1,000. The going interest rate (rd) is 5.00%, based on semiannual compounding. What is the bond's price?

Keys Printing plans to issue a $1,000 par value, 20-year noncallable bond with a 7.00% annual coupon, paid semiannually. The company's marginal tax rate is 40.00%, but Congress is considering a change in the corporate tax rate to 45.00%. By how much would the component cost of debt used to calculate the WACC change if the new tax rate was adopted?

O'Brien Ltd.'s outstanding bonds have a $1,000 par value, and they mature in 25 years. Their nominal annual, not semiannual yield to maturity is 9.25%, they pay interest semiannually, and they sell at a price of $875. What is the bond's nominal coupon interest rate?

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11. Weir Inc. has a bond in its capital structure that has 20 years to maturity left. The bond has a 9.25% coupon paid annually, sells at a price of $1,000 and has a par value of $1,000. If the firm's tax rate is 40%, what is the component cost of debt for use in the WACC calculation?

4.35%
4.58%
4.83%
5.08%
5.55%

12. A 15-year bond with a face value of $1,000 currently sells for $800. One year later, if the discount rate is still the same, which of the following statements is CORRECT?

The bondâs price will still be exactly $800.
The bondâs price will still be somewhat greater (perhaps by around $10 more).
The bondâs price will still be somewhat less (perhaps by around $10 less).
The bondâs price will still be significantly greater (perhaps by around $100).
The bondâs price will still be significantly less (perhaps by around $100).

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