Homework Answers
a.
Number of debentures issued = 1,968
Total principal value of debenture = $1,968,000
Face value of 1 debenture = 1,968,000/1,968
= $1,000
Interest per bond = Par value of 1 bond x Interest rate
= 1,000 x 7%
= $70
b.
Interest expense per year = Total principal value of debenture x interest rate
= 1,968,000 x 7%
= $137,760
c.
After tax interest cost = Interest rate x ( 1- tax rate)
= 7 x ( 1-0.39)
= 4.27%
Kindly comment if you need further assistance.
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