Question

Scherr Enterprises has a series of 8 percent coupon bonds outstanding with a $1,000 par value.
The bonds mature in 10 years and currently sell for $946. If new bonds are issued, the issuance
cost is expected to be $11 per bond. Scherr's marginal tax rate is 40 percent. What is the
marginal after-tax cost of debt for Scherr? (Assume annual interest payments.)
E
M(1 – F) =
M
INT(1 - 1
1 +14(1 -T)
+
1 + ra(1 – t)
T)​

Answer 1

Answer:

Par = $1,000

Coupon payment = $1,000 x 8% = $80

N = 10

Current price = $946

Insurance cost = $11

Marginal tax rate = 40%

Estim

Explanation:

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