Question

1. XYZ has an outstanding bond. It's a 4% semiannual coupon bond maturing in 4 years with a par value of $100 and is trading at $95. Income tax rate is 25%. Calculate the after-tax cost of debt for XYZ.

2.A company finances its operations with 47 percent debt and the rest using equity. The annual yield on the company's debt is 4.3% and the required rate of return on the stock is 12.2%. What is company's WACC? Assume the tax rate is 30%Round the answer to the nearest 2 decimal percentage points. For example, if your answer is 12.345%, then enter 12.35

3.Dealer 1 offers the following exchange rates:

1 USD = 0.8 CAD
1 USD = 1.367 GBP

Dealer 2 offers the following exchange rates:
1 GBP= 0.981 CAD

What is the arbitrage profit on $63,971?

Enter your answer round off two two decimal points.

Answer 1

Answer to Q#1 (First question in the list): # of semiannuals left to maturity, NPER Semiannual coupon Payment, PMT Bond's current selling price, PV Bond's maturity value at the end, FV Semiannual compounding type, TYPE Pre-tax Bond's Semiannual YTM Number of semiannuals in a year Pre-tax annual cost of debt Tax Rate After-tax annual cost of debt 8 [4 years x 2 --> As there will be 2 semiannuals per year] $2 ($100 x 4% / 2 --> Coupons are payable on par value at semiannual coupon rate] $95 (Given] $100 [Par value of the bonds payable at maturity] 0 = 0 if coupons paid at the end of each period; 1 if coupons paid at the beginning of each period 2.7034% [Ref: EXCEL SCREENSHOT] 5.41% [2.7034% x 2] 25% 4.06% [5.41% x (1-25%) = 5.41% x 75% = 4.06%] EXCEL SCREENSHOT: Pre-tax Bond's Semiannual Yield to Maturity is calculated using EXCEL FUNCTION RATE(nper,pmt,pv,fv,type) where nper=8; pmt=-2; pv=95; fv=-100; type=0; Here, pmt & fv are negative as they denote cash inflows; pv is positive as it denotes cash outflow; type = 0 as coupons are paid at the end of each semiannual only. А. B C D E F G H к 1 # of semiannuals left to maturity, NPER =4*2 [4 years x 2 --> As there will be 2 semiannuals per year] 2 Semiannual coupon Payment, PMT =100*4%/2 ($100 x 4% / 2 --> Coupons are payable on par value at semiannual coupon rate) 3 Bond's current selling price, PV $95 (Given] 4 Bond's maturity value at the end, FV $100 [Par value of the bonds payable at maturity] 5 Semiannual compounding type, TYPE 0 = 0 if coupons paid at the end of each period; 1 if coupons paid at the beginning of each period Pre-tax Bond's Semiannual YTM =RATE(B1,-B2,B3,-B4,B5) [Ref: EXCEL SCREENSHOT] 7 Number of semiannuals in a year Pre-tax annual cost of debt =B6 B7 Tax Rate 25% 10 After-tax annual cost of debt =B8*(1-B9) mnogo