The Parker Company sold a $1,000 par value bond that has 20 years to maturity and...
The Parker Company sold a $1,000 par value bond that has 20 years to maturity and a 7.00% annual coupon rate with coupons paid semiannually. The bond currently sells for $950, and the company’s tax rate is 33%. What is the AFTER TAX component cost of debt for use in the WACC calculation?
Enter the answer as a decimal with four places of precision (i.e. 0.1234).
Homework Answers
Coupon = (0.07 * 1000) / 2 = 35
Number of periods = 20 * 2 = 40
Yield to maturity = 7.48608%
Keys to use in a financial calculator:
2nd I/Y 2
FV 1000
PV 950
N 40
PMT 35
CPT I/Y
After tax cost of debt = 0.0748608 (1 - 0.33)
After tax cost of debt = 0.0502
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