Cost of debt . Dunder-Mifflin Inc. (DMI) is selling 600,000 bonds to raise money
ID: 2624382 • Letter: C
Question
Cost of debt. Dunder-Mifflin Inc. (DMI) is selling 600,000 bonds to raise money for new magazines to be published in the coming year. The bonds will pay a coupon rate of 10.7% on semiannual payments. The par value of the bond is $100, and the bond will mature in thirty years. What is the cost of debt to DMI if the bonds raise the following amounts (ignoring issuing cost)?
What is the cost of debt to DMI if the bonds raise $57,672,000? ___ % (Round to two decimal places)
What is the cost of debt to DMI if the bonds raise $56,784,000? ___ % (Round to two decimal places)
What is the cost of debt to DMI if the bonds raise $68,646,000? ___ % (Round to two decimal places)
What is the cost of debt to DMI if the bonds raise $78,582,000? ___ % (Round to two decimal places)
Explanation / Answer
What is the cost of debt to DMI if the bonds raise $57,672,000? ___ % (Round to two decimal places)
PV = 57,672,000
FV = 60,000,000
PMT = 10.7%*60,000,000*1/2 = 3,210,000
nper = 30*2 = 60
Semi Annual rate = rate(nper,pmt,pv,fv)
Semi Annual rate = rate(60,3210000,-57672000,60000000)
Semi Annual rate = 5.575%
Cost of Debt = 5.575*2
Cost of Debt = 11.15%
What is the cost of debt to DMI if the bonds raise $56,784,000? ___ % (Round to two decimal places)
PV = 56,784,000
FV = 60,000,000
PMT = 10.7%*60,000,000*1/2 = 3,210,000
nper = 30*2 = 60
Semi Annual rate = rate(nper,pmt,pv,fv)
Semi Annual rate = rate(60,3210000,-56784000,60000000)
Semi Annual rate = 5.665%
Cost of Debt = 5.665*2
Cost of Debt = 11.33%
What is the cost of debt to DMI if the bonds raise $68,646,000? ___ % (Round to two decimal places)
PV = 68,646,000
FV = 60,000,000
PMT = 10.7%*60,000,000*1/2 = 3,210,000
nper = 30*2 = 60
Semi Annual rate = rate(nper,pmt,pv,fv)
Semi Annual rate = rate(60,3210000,-68646000,60000000)
Semi Annual rate = 4.635%
Cost of Debt = 4.635*2
Cost of Debt = 9.27%
What is the cost of debt to DMI if the bonds raise $78,582,000? ___ % (Round to two decimal places)
PV = 78,582,000
FV = 60,000,000
PMT = 10.7%*60,000,000*1/2 = 3,210,000
nper = 30*2 = 60
Semi Annual rate = rate(nper,pmt,pv,fv)
Semi Annual rate = rate(60,3210000,-78582000,60000000)
Semi Annual rate = 3.985%
Cost of Debt = 3.985*2
Cost of Debt = 7.97%