MJS333Problem 9-9 Bond Yield and After-Tax Cost of Debt A company\'s 6% coupon r
ID: 2727324 • Letter: M
Question
MJS333Problem 9-9
Bond Yield and After-Tax Cost of Debt A company's 6% coupon rate, semiannual payment, $1,000 par value bond that matures in 20 years sells at a price of $614.24. The company's federal-plus-state tax rate is 35%. What is the firm's after-tax component cost of debt for purposes of calculating the WACC? (Hint: Base your answer on the nominal rate.) Round your answer to two decimal places. %
***Please reply correct; I am posting same question 3rd time but always getting wrong answer; hopefully someone correct this time.
Explanation / Answer
Use financial calculator
FV=1000
PV=-614.24
N=2*20=40
PMT=1000*6%/2=30
CLICK CPT
PRESS 1/Y=5.36%*2=10.72%
After tac cost of debt = 10.72%*0.65=6.968%
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