Your firm is considering a new investment proposal and would like to calculate t

Question

Your firm is considering a new investment proposal and would like to calculate the weighted average cost of capital. to help in this, compute the cost of capital for the firm for the following:

1. A bond that has a $1,000 par value (face value) and a contract or coupon interest rate of 11.7% that is paid semiannually. The bond is currently selling for a price of $1129 and will mature in 10 years. The firm;s tax rate is 34%. The after-tax cost of debt from the firm is _________%. (Round to two decimal places).

Explanation / Answer

Answer:1 The after tax cost of debt from the firm:

=($117/$1129)*100=10.36%

=10.36%(1-0.34)

=6.8376%

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