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1) Goofy Gas Works has bonds that mature in 10 years

The bonds have a 10% coupon rate paid quarterly.

They have a before tax cost of debt of 8% and a tax bracket of 35%

What is the cost of debt? Answer should be 5.2%, need work to justify all answers.

2) Wild Child Motors has a 12 year bond that carries an 8% semi-annual coupon rate and a nominal yield to maturity of 6%. The firm incurs flotation costs of 3% of the price of the bond. What is the cost of the debt if the firm is in the 40% tax bracket? answer should be 3.83%

3) Jolly Jelly bean Co. has a bond with a 12 year maturity date and a 9% Semi-annual coupon rate.The bond had a Nominal yield to maturity of 7%. The firm would pay $3 flotation cost. What is the bonds cost of debt if the firm is in the 35% tax bracket? answer should be 4.58%

Please help with all 3 problems!!!!

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Collen Von
Collen VonLv2
28 Sep 2019

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Currently, Warren Industries can sell 15-year, $1,000-par-value bonds paying annual interest at a 12% coupon rate. As a result of current interest rates, the bonds can be sold for $1,010 each; flotation costs of $30 per bond will be incurred in this process. The firm is in the 40% tax bracket.

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Schooner Company is contemplating offering a new $50 million bond issue to replace an outstanding $50 million bond issue. The firm wishes to take advantage of the decline in interest rates that has occurred since the initial bond issuance. The old and new bonds are described in what follows. The firm is in the 30% tax bracket.

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a.) Calculate the tax savings that are expected from the unamortized portion or the old bonds' flotation cost. Round your answer to the nearest whole dollar.

b.)Calculate the annual tax savings from the flotation cost of the new bonds, assuming the 15-year amortization. Round your answer to the nearest whole dollar.

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