Jessica\'s Boutique has 12,000 bonds outstanding at a quoted price of 98% of fac

Question

Jessica's Boutique has 12,000 bonds outstanding at a quoted price of 98% of face value. The bonds mature in eleven years and carry a 9% annual coupon. What is Jessica's aftertax cost of debt if the applicable tax rate is 35%? Answer a. 5.77% b. 6.33% c. 6.04% d. 6.19% e. 6.23% Jessica's Boutique has 12,000 bonds outstanding at a quoted price of 98% of face value. The bonds mature in eleven years and carry a 9% annual coupon. What is Jessica's aftertax cost of debt if the applicable tax rate is 35%? Jessica's Boutique has 12,000 bonds outstanding at a quoted price of 98% of face value. The bonds mature in eleven years and carry a 9% annual coupon. What is Jessica's aftertax cost of debt if the applicable tax rate is 35%? 5.77% 6.33% 6.04% 6.19% 6.23% a. 5.77% b. 6.33% c. 6.04% d. 6.19% e. 6.23%

Explanation / Answer

The correct answer is (c)6.04%

980= 90PVIFA(Kd,11)+1000PVIF(Kd,11)

Kd= 9.30%

aftertax cost of debt= 9.30(1-.35)= 6.04%

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