Question

Viserion, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 18 years to maturity that is quoted at 109 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 22 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.) a. Pretax cost of debt b. Aftertax cost of debt

Answer 1

Face Value	$1,000.00
Coupon Rate	6.00%
Coupon Payment	$60.00
Current Price = $1000 x 109%	$1,090.00
Period	18
YTM = Rate(18,60,-1090,1000)	5.22%
Pretax cost of debt	5.22%
After tax cost of debt (5.22% x (1 - 22%)	4.07%