In: Finance
Octopus Transit has a $1,000 par value bond
outstanding with 10 years to maturity. The bond carries an annual
interest payment of $84, payable semiannually, and is currently
selling for $1,095. Octopus is in a 30 percent tax bracket. The
firm wishes to know what the aftertax cost of a new bond issue is
likely to be.
a. Compute the Yield to maturity on the old issue and use this as
the Yield for the new issue.
Yield on new issue....
b. Make the appropriate tax adjustments to determine the aftertax cost of debt.
Cost of debt....
issue