Question
In: Finance
jiminy's Cricket farm issued a 20-year, 7 percent, semi annual bond four years ago. the bond...
jiminy's Cricket farm issued a 20-year, 7 percent, semi annual bond
four years ago. the bond currently sells for 108% of its face
value. what is the aftertax cost of debt if the companys combined
tax rate is 23%?
Solutions
Expert Solution
We can calculate the after tax cost of debt as follows:
Let the Par Value of Bond = $ 1000
Current Value = Par Value * 108%
= 1000 * 1.08
= $ 1,080
Coupon Rate = 7%
Payment = Semiannually
Total period = 20 years
Bond was issued 4 years ago, So period left is
= 20 - 4
= 16 years
Further we can use this information to calculate the yield to maturity of the bond as follows:
Formulas used in the excel sheet are:
So, the after tax cost of debt comes out to be 4.78%.
Hope I am able to solve your concern. If you are satisfied hit a thumbs up !!
jeff jeffy answered 2 years agoRelated Solutions
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