Mudvayne, Inc., is trying to determine its cost of debt. The firm has a debt iss

Question

Mudvayne, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 12 years to maturity that is quoted at 104 percent of face value. The issue makes semiannual payments and has an embedded cost of 10 percent annually.

What is the company’s pretax cost of debt? (Do not round intermediate calculation and round your answer to 2 decimal places. (e.g., 32.16))

If the tax rate is 35 percent, what is the aftertax cost of debt? (Do not round intermediate calculations and round your answer to 2 decimal places. (e.g., 32.16))

What is the company’s pretax cost of debt? (Do not round intermediate calculation and round your answer to 2 decimal places. (e.g., 32.16))

Explanation / Answer

pre tax cost of debt is 10% as it is given in the question and

after tax cost of debt is cost of debt*after tax percentage(100%-35%=65%) so after tax cost of debt = 10*65/100=6.5%

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