Question

Bond interest payments before and after taxes Charter Corp. has issued 1 comma 832 debentures with a total principal value of ​$1 comma 832 comma 000. The bonds have a coupon interest rate of 8​%. a. What dollar amount of interest per bond can an investor expect to receive each year from​ Charter? b. What is​ Charter's total interest expense per year associated with this bond​ issue? c. Assuming that Charter is in a 39​% corporate tax​ bracket, what is the​ company's net​ after-tax interest cost associated with this bond​ issue?

Answer 1

a. $80

b. $146,560

c. $89,401.60

Step-by-step explanation:

The computation of given question is shown below :-

a. Dollar amount of interest = Bond face value × Coupon rate

= $1,000 × 8%

= $80

b. Total interest expense = Total principal value × Interest rate

= $1,832,000 × 8%

= $146,560

c. After-tax interest cost = Total interest expense × (1 - Tax Rate)

= $146,560 × (1 - 0.39)

= $146,560 × 0.61

= $89,401.60