Question

Olympic Sports has two issues of debt outstanding. One is a 5% coupon bond with a face value of $33 million, a

maturity of 10 years, and a yield to maturity of 6%. The coupons are paid annually. The other bond issue has a maturity of 15 years, with coupons also paid annually, and a coupon rate of 6%. The face value of the issue is $38 million, and the issue sells for 90% of par value. The firm’s tax rate is 30%.

a.What is the before-tax cost of debt for Olympic? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

  Before-tax cost of debt %  

b.What is Olympic’s after-tax cost of debt? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

  After-tax cost of debt %

 

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Question

In 1880 five aboriginal trackers were each promised the equivalent of 100 Australian dollars for helping to

capture the notorious outlaw Ned Kelley. In 1998 the granddaughters of two of the trackers claimed that this reward had not been paid. The Victorian prime minister stated that if this was true, the government would be happy to pay the $100. However, the granddaughters also claimed that they were entitled to compound interest.

How much was each grandaughter entitled to if the interest rate was 3%?

How much was each entitled to if the interest rate was 6%?

Please show me how you worked out this problem. Thanks.

 

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