iPad 12:47 PM ezto.mheducation.com 30 WACC instructions l help Question 6 (of 15

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iPad 12:47 PM ezto.mheducation.com 30 WACC instructions l help Question 6 (of 15) Save & Exit value: 1.00 points Ying Import has several bond issues outstanding, each making semiannual interest payments. The bonds are listed in the table below Price Quote 106.9 93.5 105.7 95.5 Bond Coupon Rate 8.90% 7.10 8.60 9.10 Maturity 3 years 6 years 13.5 years 3 years Face Value $28,000,000 30,000,000 35,000,000 50,000,000 2 4 Required: 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 percentage rounded to 2 decimal places (e.g., 32.16).) Aftertax cost of debt References eBook & Resources Worksheet Difficulty: Intermediate Learning Objective: 12-02 Determine a firms cost of debt. Check my work

Explanation / Answer

FOR CALULATION OF AFTER TAX COST OF DEBT MARKET PRICE WEIGHT CAN BE USED OTHERWISE BOOK VALUE/FACE VALUE WEIGHT CAN BE USED.

BUT DUE TO LACK OF INFORMATION ABOUT THE NO OF BONDS ISSUED IN EACH TYPE OF BOND WE ARE CALCULATING BYA TAKING FACE VALUE WEIGHT.

#BY TAKING FACE VALUE WEIGHT

BOND   COST OF DEBT AFTER TAX COST   FACE VALUE   WEIGHT   WEIGHT * AFTER TAX COST

1 8.90% 5.785% $28000000 19.58 1.133%

2 7.10 4.615 30000000 20.98 0.968

3 8.60 5.59 35000000 24.47 1.368

4 9.10 5.915 50000000 34.97 2.068

WEIGHTED AFTER TAX COST OF BOND = 5.537%

AFTER TAX COST OF BOND= COST OF BOND *(1-TAX RATE)

WEIGHT=FACE VALUE OF A SINGLE BOND / TOTAL OF FACE VALUE OF BONDS *100

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