financial management
Viserion, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 26 years to maturity that is quoted at 95 percent of face value. The issue makes semiannual payments and has an embedded cost of 6 percent annually.
Homework Answers
a) using financial calculator
n= 26*2 = 52
pv = -950
pmt = 1000*6%/2 = 30
fv =1000
compute IY = 3.20% (rounded off to two decimal place)
pretax cost of debt =3.20% x 2 =6.40%
Note- Can be solved in excel using rate function
b) after tax cost of debt =pretax cost of debt (1-tax rate)
after tax cost of debt = 6.40% (1-.25) = 4.80%
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