Ying Import has several bond issues outstanding, each making semiannual interest
ID: 2628894 • Letter: Y
Question
Ying Import has several bond issues outstanding, each making semiannual interest payments. The bonds are listed in the following table. If the corporate tax rate is 33 percent, what is the aftertax cost of Ying's debt? (Do not round your intermediate calculations.)
Bond
Coupon Rate
Price Quote
Maturity
Face Value
26.5 years
$62,000,000
Bond
Coupon Rate
Price Quote
Maturity
YTMFace Value
1 5.5% 105 3 years 3.72% $ 19,000,000 2 6.1% 113 6 years 3.67% $43,000,000 3 5.4% 104 14.5 years 5.01% $41,000,000 4 5.9% 1826.5 years
4.7%
$62,000,000
Explanation / Answer
Bond Coupon Rate Price Quote Maturity Face Value Market value Weight No. of periods Coupon Rate YTM 1 5.50% 105.00 3 years $19,000,000 $19,950,000 16.31% 6 $27.50 2.2106% 3.72% 2 6.10% 113.00 6 years $43,000,000 $48,590,000 39.72% 12 $30.50 2.2804% 3.67% 3 5.40% 104.00 14.5 years $41,000,000 $42,640,000 34.85% 29 $27.00 2.8535% 5.01% 4 5.90% 18.00 26.5 years $62,000,000 $11,160,000 9.12% 53 $29.50 2.5678% 4.70% $122,340,000 Weighted average YTM of company's debt = 4.24% After tax cost of debt = 2.84% Aftertax cost of debt 2.84 percent
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