Homework Answers
Answer:
![6.58]%](http://img.homeworklib.com/questions/98b54ae0-7247-11ea-a63d-1def0bc6876b.png?x-oss-process=image/resize,w_560)
Working:
Given:
Par value = FV = $1000
Price = PV = $748.68
Semiannual coupon = PMT = 1000 * 8% / 2 =$40
Number of semiannual periods = nper = 25 * 2 = 50
Hence:
Semiannual before tax cost of debt = RATE (nper, pmt, pv, fv, type) = RATE (50, 40, -748.68, 1000, 0) = 5.47997%
Hence before tax cost of debt = 5.47997% * 2
After-tax cost of debt = 5.47997% * 2 * (1 - 40%) = 6.58%
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