Keys Printing plans to issue a $1,000 par value, 20-year noncallable bond with a 7

Finance Dec 25, 2020

Keys Printing plans to issue a $1,000 par value, 20-year noncallable bond with a 7.00% annual coupon, paid semiannually. The company's marginal tax rate is 40.00%, but Congress is considering a change in the corporate tax rate to 30.00%. By how much would the component cost of debt used to calculate the WACC change if the new tax rate was adopted?

Expert Solution

Old tax regime

After tax rate = YTM * (1-Tax rate)

After tax rate = 7 * (1-0.4)

After tax rate = 4.2

new tax regime

After tax rate = YTM * (1-Tax rate)

After tax rate = 7 * (1-0.3)

After tax rate = 4.9

Change = 4.9-4.2 = 0.7%

Archived Solution

Unlocked Solution

You have full access to this solution. To save a copy with all formatting and attachments, use the button below.

Already a member? Sign In

Important Note: This solution is from our archive and has been purchased by others. Submitting it as-is may trigger plagiarism detection. Use it for reference only.

For ready-to-submit work, please order a fresh solution below.

Or get 100% fresh solution

Get Custom Quote