Question

Viserion, Inc., is trying to determine its cost of debt. The firm has a debt Issue outstanding with 14 years to maturity that is quoted at 105 percent of face value. The Issue makes semiannual payments and has an embedded cost of 6 percent annually. a. What is the company's pretax cost of debt? (Do not round Intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. If the tax rate is 23 percent, what is the aftertax cost of debt? (Do not round Intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Pretax cost of debt Aftertax cost of debt

Answer 1

Par valu elfu)$.1000 Present value (PU): 1000x105-)..$1050 ...Nper = 16 yrs = 1482 Port :=1000X6.4. - $ 60=60-330 Periods = semiannual periods: 2 a) Pretax cost of debt: 2 x Ratelnper, pat, Pufy) By using excel 2x(1482,30,-1050,1000) 2x0.027418 ::. : 0.054837 2. Pretaxe cost of debt: 5:48.). b) calculation of After tax cost ordebt is Aftey tax cost of debt: Pretare cost of debt(1 - Taxwele) : 5.487.(1-23) -0.042196=4,22% . After taxe ast of dest: 4.22.7.

Pre tase cost of debt - 5148-1, i Aftet teixe cost of debte 4.22.).