Question

Ying Import has several bond issues outstanding, each making semiannual interest payments. The bonds are listed in the table below. Bond Coupon Rate Price Quote Maturity Face Value 1 8.90 % 105.4 3 years $ 24,000,000 2 6.60 95.0 6 years 44,000,000 3 8.60 104.2 13.5 years 49,000,000 4 9.10 106.1 23 years 64,000,000 If the corporate tax rate is 35 percent, what is the aftertax cost of the company’s debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

I've been able to calculate weights and am having difficulty finding # of periods needed to fill the rate function in excel:

Weight

1: 25296000--.135958

2: 41800000-- .224661

3: 51058000-- .27442

4: 67904000-- .364961

Total Market Value: 186058000

Answer 1

Bond Coupon rate	Price	Maturity	Face Value	Market Value	Weight	Before tax Cost of Debt (YTM)	After tax cost of Debt	Weight x after tax cost of debt
18.90%	105.4	3	2,40,00,000	2,52,96,000	13.60%	16.48%	10.71%	1.46%
6.60%	95	6	4,40,00,000	4,18,00,000	22.47%	7.67%	4.99%	1.12%
8.60%	104.2	13.5	4,90,00,000	5,10,58,000	27.44%	8.08%	5.25%	1.44%
9.10%	106.1	23	6,40,00,000	6,79,04,000	36.50%	8.49%	5.52%	2.01%
				18,60,58,000				6.03%

calculate YTM using financial calculator

Bond1 = n =3, PV = -105.40, PMT = 18.90, FV =100 calculate IY, IY = 16.48%

Bond 2 = n =6, PV = -95, PMT = 6.6, FV =100 calculate IY, IY = 7.67%

Bond 3 = n =13.5, PV = -104.20, PMT = 8.6, FV =100 calculate IY, IY = 8.08 %

Bond 4 = n =23, PV = -106.10, PMT = 9.1, FV =100 calculate IY, IY = 8.49%

Weighted average cost of debt = 6.03%

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