The Ess Kay Refrigerator Company is deciding to issue 2,000,000 of `1,000, 14 per cent, 7 year debentures. The debentures will have to be sold at a discount rate of 3 per cent. Further, the firm will pay an underwriting fee of 3 per cent of the face value. Assume a 35 per cent tax rate. Calculate the after-tax cost of the issue. What would be the after-tax cost if the debenture were sold at a premium of `30?
The Ess Kay Refrigerator Company is deciding to issue 2,000,000 of `1,000, 14 per cent, 7 year debentures. The debentures will have to be sold at a discount rate of 3 per cent. Further, the firm will pay an underwriting fee of 3 per cent of the face value. Assume a 35 per cent tax rate. Calculate the after-tax cost of the issue. What would be the after-tax cost if the debenture were sold at a premium of `30?
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter21: Supply Chains And Working Capital Management
Section: Chapter Questions
Problem 10P: The D.J. Masson Corporation needs to raise $500,000 for 1 year to supply working capital to a new...
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The Ess Kay Refrigerator Company is deciding to issue 2,000,000 of `1,000, 14 per cent, 7 year debentures. The debentures will have to be sold at a discount rate of 3 per cent. Further, the firm will pay an underwriting fee of 3 per cent of the face value. Assume a 35 per cent tax rate. Calculate the after-tax cost of the issue. What would be the after-tax cost if the debenture were sold at a premium of `30?
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