5 years ago, Barton Industries issued 25-year noncallable, semiannual bonds with a $1,000 face value and a 9% coupon, semiannual payment ($45 payment every 6 months). The bonds currently sell for $844.87. If the firm's marginal tax rate is 25%, what is the firm's after-tax cost of debt? Do not round intermediate calculations. Round your answer to two decimal places.
%
using excel rate function
Yield to maturity
= RATE(number_of_periods, payment_per_period, present_value, [future_value], [end_or_beginning], [rate_guess]) * compounds in aa year
= RATE(50,45,-844.87,1000) * 2
= 10.81%
after tax cost of debt = 10.81% * (1-0.25)
= 8.1075%
= 8.11%
SOLUTION :
Using online calculator for YTM , ref : https://dqydj.com/bond-yield-to-maturity-calculator/ :
Key -in the following :
Current market price ($) = 844.87
Bond Face Value ($) = 1000
Years to maturity (25 - 5) = 20
Annual coupon rate (%) = 9.0
Frequency of coupon = 2 (being semi-annual)
And see the result : YTM = Pre tax cost of debt = 10.924 %
So,
After tax cost of debt = 10.924( 1 - 0.25) = 9.193 = 8.19 % (ANSWER)
5 years ago, Barton Industries issued 25-year noncallable, semiannual bonds with a $1,000 face value and...
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