Question

Problem 14-7 Calculating Cost of Debt [LO2] Jiminy's Cricket Farm issued a bond with 20 years to maturity and a semiannual coupon rate of 6 percent 3 years ago. The bond currently sells for 103 percent of its face value The company's tax rate is 22 percent a. What is the pretax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g. 32.16.) b. What is the aftertax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Pretax cost of debt b. After a cost of debt < Prev 53

Answer 1

Cost of dent is the Yield to maturity

Yield to maturity is calculated is using Finance Calculator with following variable

Find Rate

NPER =17*2

PMT=6%*100/2=3

PV =103

FV =100

Pre Tax cost of debt=5.72%

After tax cost of debt =5.72%*(1-.22)=4.46%