Ying Import has several bond issues outstanding, each making semiannual interest
ID: 2657292 • Letter: Y
Question
Ying Import has several bond issues outstanding, each making semiannual interest payments. The bonds are listed in the following table Bond Coupon Rate Price Quote Maturity 7.0% 8.5 8.2 7.8 106.86 115.52 14.07 103.31 5 years 8 years 15.5 years 25 years Face Value $50,000,000 45,000,000 65,000,000 60,000,000 2 4 If the corporate tax rate is 35 percent, what is the aftertax cost of the company's debt? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Cost of debtExplanation / Answer
Calculation of cost of debt after tax:
Using financial calculator BA II Plus - Input details:
1
2
3
4
FV = Future Value / Face Value =
-$50,000,000.00
-$45,000,000.00
-$65,000,000.00
-$60,000,000.00
PV = Present Value = Quoted price /100 x |FV| =
$53,430,000.00
$51,984,000.00
$74,145,500.00
$61,986,000.00
N = Number of years remaining x frequency =
10
16
31
50
PMT = Payment = Coupon / frequency =
-$1,750,000.00
-$1,912,500.00
-$2,665,000.00
-$2,340,000.00
CPT > I/Y = Rate per period or YTM per period =
$2.71
$3.01
$3.36
$3.75
Convert Yield in annual and percentage form = Yield*frequency / 100 =
5.42%
6.03%
6.72%
7.50%
After tax Cost of debt = YTM x (1-Tax) = Yield x (1-35%) =
3.52%
3.92%
4.37%
4.88%
Cost of debt = 4.22% or Weighted average cost of debt after tax = 4.22%
#
Market value
Weight of debt
After-tax cost of debt
Weighted cost
W
C
WC
1
$53,430,000.00
22.1201%
3.5201%
0.7786%
2
$51,984,000.00
21.5214%
3.9172%
0.8430%
3
$74,145,500.00
30.6963%
4.3710%
1.3417%
4
$61,986,000.00
25.6622%
4.8781%
1.2518%
Total
$241,545,500.00
Weighted cost = Total =
4.22%
Using financial calculator BA II Plus - Input details:
1
2
3
4
FV = Future Value / Face Value =
-$50,000,000.00
-$45,000,000.00
-$65,000,000.00
-$60,000,000.00
PV = Present Value = Quoted price /100 x |FV| =
$53,430,000.00
$51,984,000.00
$74,145,500.00
$61,986,000.00
N = Number of years remaining x frequency =
10
16
31
50
PMT = Payment = Coupon / frequency =
-$1,750,000.00
-$1,912,500.00
-$2,665,000.00
-$2,340,000.00
CPT > I/Y = Rate per period or YTM per period =
$2.71
$3.01
$3.36
$3.75
Convert Yield in annual and percentage form = Yield*frequency / 100 =
5.42%
6.03%
6.72%
7.50%
After tax Cost of debt = YTM x (1-Tax) = Yield x (1-35%) =
3.52%
3.92%
4.37%
4.88%
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