Question

You are analyzing the after-tax cost of debt for a fimm. You knowthat the firm's 12-year maturity 14.50 pencent semiannual coupon bonds are selling at a price of $1.089.93. These bonds are the only debx outstandirg for the frm a1 Your answer s corroct What is the current YTM of the bands? (Round final answer to 2 decimal places, e-g. 15.25%. ) YTM 13.00 eTechook and Media Attempts 1 of 2 used (a2 Your arewer is correct What is the after-taxcost of debt for this finm if it has a marginal taxrate of 34 percent? (Round intermediate calculations to 4 decimal places, e.g., 1.2514 and final answer to 2 decimal places, e.g. 15.25%. 8.58 % Ator tax cost ot doot eTextbook and Media Attempts 1 of 2 used a3 What is the current YTM of the bonds and after-tax cost of debt for this firm if the bonds are selling at par? (Round intermediate calculations to 4 decimal places, e.3. 1.2514 and final answers to 2 decimal places, e.g. 15.25%.) YTM After-tax cost of debt

Answer 1

COUPON RATE 14.50% YEARS TO MATURITY 12 NPER 24 (years to maturity x 2) PMT 72.5 (face value x coupon rate)/2 FACE VALUE $1,000.00 PRICE = PV = $1,089.93 RATE = 6.50% rate(nper,pmt,-pv,fv) rate(24,7.25,-1089.93,1000) YIELD TO MATURITY = RATE X 2 = 13.00% [6.5%*2) after tax cost of debt = [Aftertax cost of debt] 8.58% (13%*(1-0.34)] (YTM X (1-1)

if sell at par: YTM = 14.50% [Equal to coupon rate ] After tax cost of debt = 9.57% [ 14.5% (1-34%)]