Author Question: New Jet Airlines plans to issue 14-year bonds with a par value of 1,000 that will pay 60 every six ... (Read 109 times)

joesmith1212 · **on:** Jul 10, 2018

New Jet Airlines plans to issue 14-year bonds with a par value of 1,000 that will pay 60 every six months. The
bonds have a market price of 1,220. Flotation costs on new debt will be 4 of the selling price.

If the firm has a
35 marginal tax bracket, compute the following:
a. Yield to maturity of debt
b. After-tax cost of existing debt
c. After-tax cost of new debt

Question 2

Project LMK requires an initial outlay of 400,000 and has a profitability index of 1.5. The project is
expected to generate equal annual cash flows over the next twelve years. The required return for
this project is 20.

What is project LMK's net present value?
A) 150,000 B) 600,000 C) 80,000 D) 120,000

xMRAZ · **Reply #1 on:** Jul 10, 2018

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