Answer:
To answer these questions, we need to know the par value, coupon rate, and number of debentures issued by Charter Corp. Based on the information provided, Charter Corp. issued 2,500 debentures with a $1,000 par value and a 7% coupon rate.
a. The dollar amount of interest per bond that an investor can expect to receive each year from Charter is calculated by multiplying the par value by the coupon rate. In this case, the interest per bond would be $1,000 x 7% = $70.
b. The total interest expense per year associated with this bond issue can be calculated by multiplying the number of bonds by the interest per bond. In this case, the total interest expense would be 2,500 x $70 = $175,000.
c. The company's net after-tax interest cost associated with this bond issue can be calculated by multiplying the total interest expense by the corporate tax rate. In this case, the net after-tax interest cost would be $175,000 x 21% = $36,750.