Jana issues 30-year debt with a par value of $1,000 and a coupon rate of 10%,...
Jana issues 30-year debt with a par value of $1,000 and a coupon rate of 10%, paid annually. If flotation costs are 2%, what is the after-tax cost of debt for the new bond issue? tax rate 40%
Homework Answers
Answer:
Face value = $1,000
Coupon rate = 10%
Annual coupon amount =$1,000 * 10% + $100
After Tax cost of debt = (Annual coupon / Value of bond (1 - Flotation cost in %)) * (1 - Tax rate)
=(100/(1000*(1-2%))*(1-40%))
=6.12245% or 6.12%
After-tax cost of debt for the new bond issue = 6.12%
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