Problem 11.15 You know that the after-tax cost of debt capital for Bubbles Champ

Question

Problem 11.15 You know that the after-tax cost of debt capital for Bubbles Champagne is 7.60 percent. Assume that the firm has only one issue of five-year bonds outstanding. The bonds make semiannual coupon payments and the marginal tax rate is 30 percent. Calculate Pre-tax cost of debt capital. (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to 2 decimal places, e.g. 15.25%.) Pre-tax cost of debt capital LINK TO TEXT What is the current price of the bonds if the coupon rate on those bonds is 10.86 percent? Current price of the bonds s

Explanation / Answer

pre tax cost of debt

=7.60%/(1-30%)

=10.86%

current price

=(1000*10.86%/2)*((1-(1+(10.86%/2))^(-5*2))/(10.86%/2))+1000/(1+(10.86%/2))^(5*2)

=1000

the above is the answer

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.