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

Question

A B Mudvayne, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 18 years to maturity that is quoted at 107 percent of face value. The issue makes semiannual payments and has an embedded cost of 6 percent annually. What is the company's pretax cost of debt? If the tax rate is 35 percent, what is the aftertax cost of debt? Settlement Maturity Price (% of par) Coupon rate Payments per year Tax rate 01/01/00 01/01/18 2 3613 10 12 13 Complete the following analysis. Do hot hard code values in your calculations. 15 Pretax cost 18 Aftertax cost of debt 1... Sheet1 -...

Explanation / Answer

N = 18 years

Semi Annual period = 18 * 2 = 36

Coupon Rate = 6%

Coupon Payment = 60

Semi Annual Coupon Payment = 30

PV = -1,070

FV = 1,000

Using Financial Calculator:

r = 2.693850%

YTM = 2 * 2.693850

YTM = 5.39%

After tax cost = 5.39% * 0.65

After tax cost = 3.50%

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

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