Question

XYZ has an outstanding bond. It's a 6% semiannual coupon bond maturing in 5 years with a par value of $100 and is trading at $90. Income tax rate is 25%.

Calculate the after-tax cost of debt for XYZ.

Group of answer choices

6.77%

6.38%

4.64%

4.06%

Answer 1

COUPON RATE 6.00% 6.00 YEARS TO MATURITY NPER 10 (years to maturity x 2) PMT 3 (face value x coupon rate)/2 FACE VALUE $100.00 PRICE = PV = $90.00 RATE = 4.25% rate(nper,pmt,-pv,fv) rate(10,3,-90, 1000) YIELD TO MATURITY = RATE X 2 = 8.50% [ 4.25%*2) [ Aftertax cost of debt ] after tax cost of debt = (YTM X (1-1) 6.38% [8.5%*(1-0.25)