Temple-Midland, Inc. is issuing a $1000 par value bond that pays 7.9 percent annual interest and...
Temple-Midland, Inc. is issuing a $1000 par value bond that
pays 7.9 percent annual interest and matures in 15 years. Investors
are willing to pay $948 for the bond and Temple faces a tax rate
of 31 percent. What is Temple's after-tax cost of debt on the
bond?
The after-tax cost of debt is (Round to two decimal places.)
Homework Answers
Before-tax cost of debt can be calculated using I/Y function
N = 15, PMT = 7.9% x 1000 = 79, PV = -948, FV = 1000
=> Compute I/Y = 8.53%
After-tax cost of debt = 8.53% x (1 - 31%) = 5.88%
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