Question

Viserion, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 11 years to maturity that is quoted at 104 percent of face value. The issue makes semiannual payments and has an embedded cost of 4 percent annually.

  

What is the company's pretax cost of debt?

3.56% 4.27% 2.31% 3.91% 3.20%

  

If the tax rate is 35 percent, what is the aftertax cost of debt?

2.31% 2.08% 2.54% 3.24% 3.56%

Answer 1

Given,

Face value = $1000

Quote rate = 104%

Actual price = $1000 x 104% or $1040

Years to maturity = 11 years

Interest rate = 4%

Solution :-