Olympic Sports has two issues of debt outstanding. One is a 8% coupon bond with

Question

Olympic Sports has two issues of debt outstanding. One is a 8% coupon bond with a face value of $36 million, a maturity of 15 years, and a yield to maturity of 9%. The coupons are paid annually. The other bond issue has a maturity of 20 years, with coupons also paid annually, and a coupon rate of 9%. The face value of the issue is $41 million, and the issue sells for 95% of par value. The firm's tax rate is 40%.

What is the before-tax cost of debt for Olympic? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

What is Olympic's after-tax cost of debt? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Olympic Sports has two issues of debt outstanding. One is a 8% coupon bond with a face value of $36 million, a maturity of 15 years, and a yield to maturity of 9%. The coupons are paid annually. The other bond issue has a maturity of 20 years, with coupons also paid annually, and a coupon rate of 9%. The face value of the issue is $41 million, and the issue sells for 95% of par value. The firm's tax rate is 40%.

Explanation / Answer

Bond 2

Bond-1

Bond A Bond B Face Value 1000 1000 Coupon Rate 8% 9% Years to maturity 15 20 Selling Price 950 Yield to Maturity 9% Total Outstanding 36000000 41000000 No of Bonds 36000 41000 Tax Rate 40% 40%

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