KU dairy limited (KUD) issues a $1,000 par, 20-year bond paying the market rate of 10%....
KU dairy limited (KUD) issues a $1,000 par, 20-year bond paying the market rate of 10%. Coupons are annual. The bond will sell for par since it pays the market rate, but floatation costs amount to $50 per bond. Calculate the pre-tax and after-tax cost of debt for KUD?
Homework Answers
The pre-tax cost of debt is equal to YTM:-
=RATE(nper,pmt,pv,fv)
=RATE(20,10%*1000,-950,1000)
=10.61%
As the tax rate is not given, after-tax is same as before-tax, if it were given then the answer would be:-
=10.61%*(1-tax rate)
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