Question

Waller, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 13 years to maturity that is quoted at 104.5 percent of face value. The issue makes semiannual payments and has a coupon rate of 9 percent. The tax rate is 38 percent. Enter your answers as a percent rounded to 2 decimal places, e.g., enter 32.16% as 32.16, not 0.3216. Hint. Solve for the YTM and adjust for taxes. The after-tax cost of debt is ……………………… %

Answer 1

green, face value (mahnity valu) = 100 $ spot price 104.58 Tem to madurity 2 .13 years 26 periods Coupon rate a 9.1. per annum an 45 4. semi annu mually Coupon amount 100x4.51 RPAT 4.58 T-5126 NECK & CO CALCUU BATTEP YTM = coupon amount + [mahnity value -spotprice n RCELL 0.6x spotprice t 0-4x maturity value (100-10457 4.58 t 26 0.6x204.5+ 0.44100 4.5-0.173. 62.7 + 40 4.327 102.2 0.0421 en 4211 Teu rate = 3.8of After tem cost of deht 2 4.214.(1-0-38) 2.7156 (or (2.71%