Kerr-McGee Corp. is planning to issue debt that will mature in 2027. In many res
ID: 2665707 • Letter: K
Question
Kerr-McGee Corp. is planning to issue debt that will mature in 2027. In many respects the issue is similar to currently outstanding debt of the corporation. Using Table 11-2, identify:a. The yield to maturity on similarly outstanding debt for the firm, in terms of maturity.
b. Assume that because the new debt will be issued at par, the required yield to maturity will be 0.15 percent higher than the value determined in part a. Add this factor to the answer in a. (New issues at par sometimes require a slightly higher yield than old issues that are trading below par. There is less leverage and fewer tax advantages.)
c. If the firm is in a 30 percent tax bracket, what is the aftertax cost of debt?
Explanation / Answer
yield to maturity =8.44% ANSWER =========================================================================================================================== new debt yield = 8.44% + 0.15% = 8.59% ANSWER =========================================================================================================================== after tax cost of debt =8.59% x (1-0.30)=6.01%ANSWER =========================================================================================================================== PLEASE RATE MY ANSWER WITH FIEV STARS
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