Question

13. Lost of debt) Melbourne, Inc. cu in the 35% marginal tax rate. what is its after ta (After-tax cost of debt) FitBite, Inc. cu a coupon rate of 6%, priced at what is its after-tax cost of a (Cost of preferred stort yield to maturity of 7.9% oure, Inc. currently has 3 bonds with a yield to maturity of 45. Vt it is "Is its after-tax cost of debt? Site, Inc. currently has an outstanding bond that pays interest annually. ced at $1,050, and 5 years until maturity. If it is in the 35% marginal tax rate, * cost of debt? What is the after-tax cost of debt if it pays interest annually? 14. stock the

Answer 1

K = N

Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N

k=1

K =5

1050 =∑ [(6*1000/100)/(1 + YTM/100)^k]     +   1000/(1 + YTM/100)^5

k=1

YTM% = 4.85

After tax rate = YTM * (1-Tax rate)

After tax rate = 4.85 * (1-0.35)

After tax rate = 3.15