P14-6 Calculating Cost of Debt [LO2] Waller, Inc., is trying to determine its co
ID: 2706915 • Letter: P
Question
P14-6 Calculating Cost of Debt [LO2]
Waller, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 15 years to maturity that is quoted at 107 percent of face value. The issue makes semiannual payments and has an embedded cost of 7 percent annually (note: this means that the coupon rate is 7% APR). The company's pretax cost of debt (as an APR) is percent. If the tax rate is 35 percent, the aftertax cost of debt (as an APR) is percent. (Do not include the percent signs (%). Round your answers to 2 decimal places. (e.g., 32.16))
Waller, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 15 years to maturity that is quoted at 107 percent of face value. The issue makes semiannual payments and has an embedded cost of 7 percent annually (note: this means that the coupon rate is 7% APR). The company's pretax cost of debt (as an APR) is percent. If the tax rate is 35 percent, the aftertax cost of debt (as an APR) is percent. (Do not include the percent signs (%). Round your answers to 2 decimal places. (e.g., 32.16))
Explanation / Answer
Hi,
Please find the anser as follows:
Nper = 15*2 = 30
PMT = 1000*.07*1/2 = 35
FV = 1000
PV = -1070
Rate = ?
Pretax Cost of Debt = Rate(Nper,PMT,PV,FV) = Rate(30,35,-1070,1000) = 3.14%*2 = 6.27%
Aftertax Cost of Debt = 6.27*(1-.35) = 4.08%
Thanks.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.