Ying Import has several bond issues outstanding, each making semiannual interest
ID: 2707838 • 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 34 percent, what is the aftertax cost of Ying's debt?
Bond Coupon Rate Price Quote Maturity Face Value
1 6.00% 105.86 5 years $40,000,000
2 7.50% 114.52 8 years $35,000,000
3 7.20% 113.07 15.5 years $55,000,000
4 6.80% 102.31 25 years $50,000,000
Explanation / Answer
Result produced using this online tool at http://finance.thinkanddone.com/online-c...
Bond Coupon Rate Price Quote Maturity Face Value
1 , 8.50% , 105.5 , 5 years , $25,000,000
Pre Tax: Cost of Debt = 3.59% Annual Cost of Debt = 7.18%
After Tax: Cost of Debt = 2.37% Annual Cost of Debt = 4.74%
2 , 6.70 , 94.9 , 8 years , 45,000,000
Pre Tax: Cost of Debt = 3.78% Annual Cost of Debt = 7.56%
After Tax: Cost of Debt = 2.5% Annual Cost of Debt = 5%
3 , 8.20 , 104.3 , 15.5 years , 50,000,000
Pre Tax: Cost of Debt = 3.86% Annual Cost of Debt = 7.72%
After Tax: Cost of Debt = 2.55% Annual Cost of Debt = 5.1%
4 , 8.70 , 106.2 , 25 years , 65,000,000
Pre Tax: Cost of Debt = 4.06% Annual Cost of Debt = 8.12%
After Tax: Cost of Debt = 2.68% Annual Cost of Debt = 5.36%
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