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The Coetzer Company can issue $1000 par value bonds with a 15-year maturity and 12.00 percent annual coupon for $1200.00. The

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Answer #1

FV = 1000
PV = 1200
Nper = 15
Pmt = 1000 * 12% = 120

Before tax cost of debt can be calculated using the following excel formula:
=RATE(nper,pmt,pv,fv)
=RATE(15,120,-1200,1000)
= 9.45%

After tax cost of debt = 9.45% * (1 - 0.40) = 5.67%

After tax cost of debt = 5.67%

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