Mojo Mining has a bond outstanding that sells for $1,067 and matures in 23 years. The bond pays semiannual coupons and has a coupon rate of 6.26 percent. The par value is $1,000. If the company's tax rate is 35 percent, what is the aftertax cost of debt?
Bond Par Value = $1,000
Bond Value = $1,067
Time Period = 23 years
Coupon Rate = 6.26% semi-annually
Calculating Yield to Maturity,
Using TVM Calculation,
I = [FV = 1,000, PV = 1,067, PMT = 31.30, T = 46]
I = 5.73%
After-tax cost of debt = (1 - 0.35)(0.0573)
After-tax cost of debt = 3.72%
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