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 10 years to maturity that is quoted at 110 percent of face value. The issue makes semiannual payments and has an embedded cost of 8 percent annually.

What is the company’s pretax cost of debt? (Do not round intermediate calculation and round your answer to 2 decimal places. (e.g., 32.16))

If the tax rate is 35 percent, what is the aftertax cost of debt? (Do not round intermediate calculations and round your answer to 2 decimal places. (e.g., 32.16))

Mudvayne, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 10 years to maturity that is quoted at 110 percent of face value. The issue makes semiannual payments and has an embedded cost of 8 percent annually.

Explanation / Answer

Face value (FV) $                                  1,000.00 Coupon rate 8.00% Number of compounding periods per year 2 Interest per period (PMT)                                            40.00 Bond price (PV) $                               (1,100.00) Number of years to maturity 10 Number of compounding periods till maturity (N) 20 Bond Yield to maturity RATE(NPER,PMT,PV,FV)*2 Bond Yield to maturity 6.62% (Pre-tax cost of debt) Bond Yield to maturity 4.30% (After-tax cost of debt) 6.62%*(1-35%)

Related Questions

Navigate

• Browse (All)
• Browse M
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.