Sunland has determined that it could issue $1000 face value
bonds with an 10 percent coupon paid semiannually and a 5-year
maturity at $939.63 per bond. If Sunland’s marginal tax rate is 40
percent, its after-tax cost of debt is closest to:
A_6.6 percent.,B_7.0 percent., C_7.3 percent., D_6.7 percent.
K = Nx2 |
Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k] + Par value/(1 + YTM/2)^Nx2 |
k=1 |
K =5x2 |
939.63 =∑ [(10*1000/200)/(1 + YTM/200)^k] + 1000/(1 + YTM/200)^5x2 |
k=1 |
YTM% = 11.63 |
After tax rate = YTM * (1-Tax rate) |
After tax rate = 11.63 * (1-0.4) |
After tax rate = 6.98 = 7% |
Sunland has determined that it could issue $1000 face value bonds with an 10 percent coupon...
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