2- Drogo, Inc., is trying to determine its cost of debt. The firm has a debt iss
ID: 2784342 • Letter: 2
Question
2-
Drogo, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 20 years to maturity that is quoted at 107 percent of face value. The issue makes semiannual payments and has an embedded cost of 9 percent annually.
What is the company’s pretax cost of debt? (Do not round intermediate calculations. Enter your answer as a percent rounded 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. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Drogo, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 20 years to maturity that is quoted at 107 percent of face value. The issue makes semiannual payments and has an embedded cost of 9 percent annually.
Explanation / Answer
What is the company’s pretax cost of debt
use financial calculator
PV=-1000*107%=-1070
N=20*2=40 semi annual
FV=1000
PMT=1000*9%/2=45
Click CPT
Click 1/Y=4.1390% per semi annual
cost of debt=4.1390%*2=8.28% is answer
the above is the answers
Aftertax cost of debt=8.28%*(1-35%)=5.38%Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.