Jiminy's Cricket Farm issued a 20-year, 7 percent, semiannual bond four years ago. The bond currently sells for 108 percent of its face value. What is the company’s pretax cost of debt? What is the company’s aftertax cost of debt if the tax rate is 23 percent?
*Answer should be Pretax cost of debt = 6.29%/ Aftertax cost of debt = 4.84%*
**Show work please!**
K = Nx2 |
Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k] + Par value/(1 + YTM/2)^Nx2 |
k=1 |
K =20x2 |
1080 =∑ [(7*1000/200)/(1 + YTM/200)^k] + 1000/(1 + YTM/200)^20x2 |
k=1 |
YTM% = 6.29 |
After tax rate = YTM * (1-Tax rate) |
After tax rate = 6.29 * (1-0.23) |
After tax rate = 4.84 |
Jiminy's Cricket Farm issued a 20-year, 7 percent, semiannual bond four years ago. The bond currently...
Jiminy's Cricket Farm issued a 20-year, 7 percent, semiannual bond four years ago. The bond currently sells for 108 percent of its face value. What is the company’s pretax cost of debt? What is the company’s aftertax cost of debt if the tax rate is 23 percent?
Jiminy's Cricket Farm just issued a 20-year, 7 percent, semiannual bond. The bond currently sells for 108 percent of its face value. What is the company’s pretax cost of debt? What is the company’s aftertax cost of debt if the tax rate is 23 percent? Pretax cost of debt 6.29% Aftertax cost of debt 4.84% Please check the answers and show all work typed out. No excel or grid style please as I am on mobile.
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