Question 7 Bath plc has in issue irredeemable bonds with a coupon rate of 4%, currently trading at 84% cum- interest. If the tax rate changes from 25% to 20% for the company, what will happen to the after-tax cost of these bonds? Increase to 5% B Decrease to 4.25% Increase to 4% D Decrease to 3.75% E The after-tax cost will not change Question 8 Taunton plc exists in a Modigliani and Miller (1958, 1963) world, except that corporate taxes exist at the rate of 20%. The firm's operating income before tax and interest is 400,000 p.a. The cost of capital for an all-equity financed firm in this world is 16% p.a., and the pre-tax market cost of debt is 4% p.a. Taunton plc has debt in its capital structure with a market value of 1.5 million. What is the market value of Taunton pic? 2 million B 23 million C3 million D 3.3 million E 3.5 million