If the corporate tax rare is 30 percent, what is the Aftertax cost of the compan

Question

If the corporate tax rare is 30 percent, what is the Aftertax cost of the company's debt ?

My answer of 2.5 is not correct, I need the correct answer please and thank you.

value: 3.00 points Ying Import has several bond issues outstanding, each making semiannual interest payments. The bonds are listed in the table below. Bond Coupon Rate ce Quote 1056 8.60% 6.80 8 30 8.80 94.8 104.4 106.3 Maturity 6 years 9 years 16.5 years 26 years Face Value $26,000,000 46,000,000 51,000,000 66,000,000 3 Required It the corporate tax rate is 30 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 250 % check my work references refetences ebook&resources;

Explanation / Answer

Step 1 : Calculation of after tax debt of each bond

Bond 1

Before Tax Cost of Debt = rate(nper,pmt,pv,fv) *2

Nper (indicates the period) = 6*2 = 12

PV (indicates the price) = 105.6%*1000 = 1056

PMT (indicate the semi annual payment) = 1000*8.6% *1/2 = 43

FV (indicates the face value) = 1000

Rate (indicates YTM) = ?

Before Tax Cost of Debt = rate(12,43,-1056,1000) * 2

Before Tax Cost of Debt = 7.43 %

After Tax Cost of Debt = 7.43*(1-30%)

After Tax Cost of Debt =5.20%

Bond 2

Before Tax Cost of Debt = rate(nper,pmt,pv,fv) *2

Nper (indicates the period) = 9*2 = 18

PV (indicates the price) = 94.80%*1000 = 948

PMT (indicate the semi annual payment) = 1000*6.8% *1/2 = 34

FV (indicates the face value) = 1000

Rate (indicates YTM) = ?

Before Tax Cost of Debt = rate(18,34,-948,1000) * 2

Before Tax Cost of Debt = 7.61 %

After Tax Cost of Debt = 7.61*(1-30%)

After Tax Cost of Debt =5.33%

Bond 3

Before Tax Cost of Debt = rate(nper,pmt,pv,fv) *2

Nper (indicates the period) = 16.5*2 = 33

PV (indicates the price) = 104.40%*1000 = 1044

PMT (indicate the semi annual payment) = 1000*8.3% *1/2 = 41.5

FV (indicates the face value) = 1000

Rate (indicates YTM) = ?

Before Tax Cost of Debt = rate(33,41.5,-1044,1000) * 2

Before Tax Cost of Debt = 7.82 %

After Tax Cost of Debt = 7.82*(1-30%)

After Tax Cost of Debt =5.47%

Bond 4

Before Tax Cost of Debt = rate(nper,pmt,pv,fv) *2

Nper (indicates the period) = 26*2 = 52

PV (indicates the price) = 106.30%*1000 = 1063

PMT (indicate the semi annual payment) = 1000*8.8% *1/2 = 44

FV (indicates the face value) = 1000

Rate (indicates YTM) = ?

Before Tax Cost of Debt = rate(52,44,-1063,1000) * 2

Before Tax Cost of Debt = 8.21%

After Tax Cost of Debt = 8.21*(1-30%)

After Tax Cost of Debt =5.75%

Step 2 : Calculation of Weight of each bond

Market Value of Bond 1 = 26 Million*105.60% = 27.456 Million

Market Value of Bond 2 = 46 Million*94.80% = 43.608 Million

Market Value of Bond 3 = 51 Million*104.40% = 53.244 Million

Market Value of Bond 4 = 66 Million*106.30% = 70.158 Million

Total Market value = 194.466 Million

Weight of Bond 1= 27.456 / 194.466

Weight of Bond 2 = 43.608 / 194.466

Weight of Bond 3 = 53.244 / 194.466

Weight of Bond 4 = 70.158 / 194.466

Step 3 : Calculation of After tax cost of the company debt

After tax cost of the company debt = Weight of Bond 1 * After Tax Cost of Debt of Bond 1 + Weight of Bond 2 * After Tax Cost of Debt of Bond 2 + Weight of Bond 3 * After Tax Cost of Debt of Bond 3 + Weight of Bond 4 * After Tax Cost of Debt of Bond 4

After tax cost of the company debt = 27.456 / 194.466*5.20 + 43.608 / 194.466*5.33 + 53.244 / 194.466 *5.47+ 70.158 / 194.466*5.75

After tax cost of the company debt = 5.50%

Answer

After tax cost of the company debt = 5.50%

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects

---

---

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