Great Seneca Inc. sells $100 million worth of 19-year to maturity 9.56% annual coupon bonds. The...
Great Seneca Inc. sells $100 million worth of 19-year to maturity 9.56% annual coupon bonds. The net proceeds (proceeds after flotation costs) are $995 for each $1,000 bond. The firm's marginal tax rate is 35%. What is the after-tax cost of capital for this debt financing?
Homework Answers
Using financial calculator
N=18
PMT=9.56%*1000=95.6
PV=-995
FV=1000
CPT I/Y=9.6195%
Hence, after tax cost of debt=9.6195%*(1-35%)=6.2527%
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