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

Question

Viserion, 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 109 percent of face value. The issue makes semiannual payments and has an embedded cost of 6 percent annually. a. What is the company's pretax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. If the tax rate is 22 percent, what is the aftertax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Pretax cost of debt b. Aftertax cost of debt

Explanation / Answer

Face Value $1,000.00 Coupon Rate 6.00% Coupon Payment $60.00 Current Price = $1000 x 109% $1,090.00 Period 18 YTM = Rate(18,60,-1090,1000) 5.22% Pretax cost of debt 5.22% After tax cost of debt (5.22% x (1 - 22%) 4.07%

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