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Several years ago, the ABC Company sold a $1,000 par value bond that now has 20...

Several years ago, the ABC Company sold a $1,000 par value bond that now has 20 years to maturity and a 8.00% annual coupon that is paid semiannually. The bond currently sells for $925 and the company’s tax rate is 30%. What is the after-tax cost of debt? Group of answer choices

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Expert Solution

Calculating Yield to Maturity,

Using TVM Calculation,

I = [PV = -925, PMT = 40, FV = 1,000, N = 40]

I = 8.80%

After-tax cost of debt = (1 - 0.30)(0.088)

After-tax cost of debt = 6.16%

jeff jeffy answered 3 years ago
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