Mudvayne, Inc., is trying to determine its cost of debt. The firm has a debt iss

Question

Mudvayne, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 14 years to maturity that is quoted at 106 percent of face value. The issue makes semiannual payments and has an embedded cost of 8 percent annually.

What is the company

Mudvayne, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 14 years to maturity that is quoted at 106 percent of face value. The issue makes semiannual payments and has an embedded cost of 8 percent annually.

Explanation / Answer

106= 4*PVIFA(YTM,28) + 100/(1+YTM)^28

YTM = 3.654*2 = 7.31%

cost of debt after tax = 7.308*(1-.35) = 4.75%

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