Question

P14-6 Calculating Cost of Debt [LO2) Waller, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 10 years to maturity that is quoted at 105 percent of face value. The issue makes semiannual payments and has an embedded cost (i.e. a coupon rate as an APR) of 10 percent annually Required: (a), What is the company's pre-tax cost of debt as an APR? (Do not round your l'intermediate calculations.) (Click to select) (b)If the tax rate is 34 percent, what is the after-tax cost of debt as an APR? (Do not round your intermediate calculations.) (Click to select)

Answer 1

rate positively ..

ans a)
	We have to use financial calculator to solve this
	Put in calculator -
	FV		1000
	PV		-1050
	PMT	=1000*5%	50
	N	10*2	20
	compute I		4.61%
	APR = 4.61%*2		9.22%
ans b)	Post tax cost of debt = 9.22%*(1-34%)				6.09%