Viserion, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 11 years to maturity that is quoted at 104 percent of face value. The issue makes semiannual payments and has an embedded cost of 4 percent annually.
What is the company's pretax cost of debt?
If the tax rate is 35 percent, what is the aftertax cost of debt? |
Pre-tax cost of bond is:
=RATE(11*2,4%/2*100,-104,100)*2
=3.56%
After-tax cost of bond is:
=3.56%*(1-0.35)
=2.31%
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