Question

Assignment Score: 27.27% tions Problem 11-09 (Bond Yield and After Tax Cost of Debt) Save Submit Assignment for Grading · Question 6 of 11 Check My Work eBook Bond Yield and After-Tax Cost of Debt A company's 8% coupon rate, semiannual payment, $1,000 par value bond that matures in 30 years sells at a price of $665.6. The company's federal-plus-state tax rate is 30%. What is the firm's after-tax component cost of debt for purposes of calculating the WACC7 (Hint: Base your answer on the nominal rate.) Round your answer to two decimal places. Check My Work 8:47 PM 03/25/20

Answer 1

PV =665.60
Semi annual coupon =8%*1000/2 =40
Price =665.60
Number of Periods =30*2=60
Before tax cost of debt using financial calculator
N=60;PMT=40:PV=-665.60;FV=1000;CPT I/Y =6.10%
YTM =2*6.10% =12.20%

After Tax YTM =12.20%*(1-Tax Rate)=12.20%*(1-30%) =8.54%