Dragbin, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 16 years to maturity that is quoted at 106 percent of face value. The issue makes semiannual payments and has an embedded cost of 6 percent annually. |
What is the company’s pretax cost of debt?(Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
If the tax rate is 35 percent, what is the aftertax cost of debt? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
We need to use Funtion RATE to find the Yield of Bond | |
NPER 16*2 =Number of Payments | 32 |
PMT =6%/2*100 =Semi annual Coupen Payment | 3 |
PV=Value of Bond | -106 |
FV =future Value of Bond | 100 |
=RATE(32,3,-106,100)*2 | 5.43% |
Cost of Debt =5.43% | |
After tax Cost of debt =5.43%*(1-.35) | 3.53% |
Dragbin, Inc., is trying to determine its cost of debt. The firm has a debt issue...
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