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    19-11-02 Cost of Debt Problem

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    Ndaru Puspitahati
    1. The after-tax cost of debt is 6.0% if the interest rate is 8% and the tax rate is 25%. The after-tax cost of debt is 7.0% if the interest rate is 10% and the tax rate is 30%. 2. For a bond with a face value of $1000, 7 years left until maturity, selling for $872.5 with an annual interest rate of 12%, the after-tax cost of debt using the regular method is 11.3% and using the shortcut method is 11.1%, with a tax rate of 25%. 3. For Bakrie Enterprises, the weighted average cost of capital using book value weights is 6.

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    19-11-02 Cost of Debt Problem

    Uploaded by

    Ndaru Puspitahati
    23 views2 pages
    1. The after-tax cost of debt is 6.0% if the interest rate is 8% and the tax rate is 25%. The after-tax cost of debt is 7.0% if the interest rate is 10% and the tax rate is 30%. 2. For a bond with a face value of $1000, 7 years left until maturity, selling for $872.5 with an annual interest rate of 12%, the after-tax cost of debt using the regular method is 11.3% and using the shortcut method is 11.1%, with a tax rate of 25%. 3. For Bakrie Enterprises, the weighted average cost of capital using book value weights is 6.

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    19-11-02 COST OF DEBT PROBLEM.xls

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    1. The after-tax cost of debt is 6.0% if the interest rate is 8% and the tax rate is 25%. The after-tax cost of debt is 7.0% if the interest rate is 10% and the tax rate is 30%. 2. For a bond with a face value of $1000, 7 years left until maturity, selling for $872.5 with an annual interest rate of 12%, the after-tax cost of debt using the regular method is 11.3% and using the shortcut method is 11.1%, with a tax rate of 25%. 3. For Bakrie Enterprises, the weighted average cost of capital using book value weights is 6.

    Copyright:

    © All Rights Reserved
    Download as XLS, PDF, TXT or read online from Scribd
    Download as xls, pdf, or txt
    23 views2 pages

    19-11-02 Cost of Debt Problem

    Uploaded by

    Ndaru Puspitahati
    1. The after-tax cost of debt is 6.0% if the interest rate is 8% and the tax rate is 25%. The after-tax cost of debt is 7.0% if the interest rate is 10% and the tax rate is 30%. 2. For a bond with a face value of $1000, 7 years left until maturity, selling for $872.5 with an annual interest rate of 12%, the after-tax cost of debt using the regular method is 11.3% and using the shortcut method is 11.1%, with a tax rate of 25%. 3. For Bakrie Enterprises, the weighted average cost of capital using book value weights is 6.

    Copyright:

    © All Rights Reserved
    Download as XLS, PDF, TXT or read online from Scribd
    Download as xls, pdf, or txt
    of 2

    N A M A : NDARU KOCO PUSPITAHATI

    N I M : B.231.17.0322
    DILARANG KERJASAMA DAN COPY PASTE
    DIKUMPULKAN KE KOMTING PALING LAMBAT HARI MINGGU JAM 23.00 WIB
    RINGKASAN INI DIAMBIL DARI LEMBAR JAWABAN DI BAGIAN BAWAH
    NO 1 NO 2 NO 3
    a b a b 1 2
    6.00% 7.00% 11.25% ### 6.80% 8.22%
    RINGKASAN, JIKA TIDAK DI ISI BERARTI SAMA DENGAN TIDAK MASUK

    COST OF DEBT

    1 Calculate the after-tax cost of debt under each of the following cases
    a. Interest rate is 8% , and the tax rate is 25%
    b. The interest rate i 10% , and the tax rate is 30%
    SOLUTION
    Kd = ki ( 1 - t)
    a. kd = 8% 1 -0.25 = 6.0%
    b. kd = 10% 1 -0.3 = 7.0%

    2 ABC Company has bonds outstanding wit 7 years left before


    maturity. The bonds are currently selling f 872.5 and 1000
    face value. The interest is paid annually at a rate of
    12% The firm's tax rate is 25% Calculate the after-tax cost
    of debt using (a) regular method and (b) the shorcut method
    SOLUTION
    a. the regular method
    V = interest (PVIFA r,n) + M (PVIF r,n)
    872.5 = 120 (PVIFA r,n)+ 1000 M (PVIF r,n)
    Di coba dengan bunga 15%
    V= 120 4.2883 + 1000 0.3579
    V= 514.596 + 357.9
    872.496

    kd = 15% 1 -0.25 = 11.3%

    b. the shorcut method


    ki = 120 + ( 1000 -872.5
    7
    1000 + 872.5
    2

    138.21429 = 14.76%
    936.25
    kd = 14.76% 1 -0.25 = 11.1%

    3 Bakrie enterprises has compiled the following investments


    a. Calculate the weighted average cost of capital, using
    1. book value weights and
    2. market value weights
    b. Explain the difference in the results obtained in (a)
    Type of Capital Book Value Market ValueAfter-tax Cost
    Long-term debt 3,000,000 2,800,000 4.80%
    Preferred stock 102,000 150,000 9.00%
    Common stock 1,108,000 2,500,000 12.00%
    4,210,000 5,450,000
    SOLUTION
    a. Calculate the weighted average cost of capital, using
    1. book value weights and
    Type of Capital Book Value Weight Cost (%) Weight Cost
    Long-term debt 3,000,000 0.713 4.80% 3.42%
    Preferred stock 102,000 0.024 9.00% 0.22%
    Common stock 1,108,000 0.263 12.00% 3.16%
    4,210,000 6.80%
    2. market value weights
    Type of Capital Book Value Weight Cost (%) Weight Cost
    Long-term debt 2,800,000 0.514 4.80% 2.47%
    Preferred stock 150,000 0.028 9.00% 0.25%
    Common stock 2,500,000 0.459 12.00% 5.50%
    5,450,000 8.22%

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