A bond that has a $1,000 par value (face value) and a contract or coupon interest...
A bond that has a $1,000 par value (face value) and a contract or coupon interest rate of 11.1
percent that is paid semiannually. The bond is currently selling for a price of $1,126 and will mature in
10 years. The firm's tax rate is 34 percent. The after tax cost of debt from the firm is ____%
Homework Answers
The after tax cost of debt from the firm is 6.04%
Working:
| Face Value | (fv) | 1000 | ||||||
| Coupon Payment | (pmt) | 1000*11.1%*6/12 | = | $ 55.50 | ||||
| Current Value | (pv) | 1126 | ||||||
| Number of period | (nper) | 20 | ||||||
| Before tax cost of debt | = | =rate(nper,pmt,-pv,fv)*2 | ||||||
| = | 9.15% | |||||||
| After tax cost of debt | = | Before tax cost of debt*(1-Tax rate) | ||||||
| = | 9.15% | * | (1-0.34) | |||||
| = | 6.04% | |||||||
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