Kenny Electric Company's noncallable bonds were issued several years ago and now have 20 years to maturity. These bonds have a 9.25% annual coupon, paid semiannually, sells at a price of $1,075, and has a par value of $1,000. If the firm's tax rate is 40%, what is the component cost of debt for use in the WACC calculation

5.08%

Explanation:

This question asks us to calculate the component cost of debt which is used in the WACC calculation if the firm’s tax rate is 40%

To calculate this, we need to know the yield to maturity of the firm. This can be calculated using a formula. In this formula, we will specify that the yield to maturity be represented as the letter Y.

Hence mathematically:

46.25 * [1-(1+Y/2)ˆ-40]/Y/2 + 1000/(1+Y/2)ˆ40 = 1075

Solving this, we get Y = 8.46%

The cost of debt = 8.46% * (1-40%) = 5.08%

a manufacturer of printed circuit boards uses exponential smoothing with trend to forecast monthly demand of its product. at the end of december, the company wishes to forecast sales for january. the estimate of trend through november has been 200 additional boards sold per month. average sales have been around 1000 units per month. the demand for december was 1100 units. the company uses α = 0.20 and β = 0.10. make a forecast including trend for the month of january.