Question

In: Finance

Viserion, Inc., is trying to determine its cost of debt. The firm has a debt issue...

Viserion, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 18 years to maturity that is quoted at 109 percent of face value. The issue makes semiannual payments and has an embedded cost of 6 percent annually.

If the tax rate is 22 percent, what is the aftertax cost of debt?

Solutions

Expert Solution

Information provided:

Time= 18 years*2= 36 semi-annual periods

Face value= future value= $1,000

Present value= 109%*1,000= $1,090

Coupon rate= 6%/2= 3%

Coupon payment= 0.03*1,000= $30

The pretax cost of debt is calculated by computing the yield to maturity.

The yield to maturity is computed by entering the below in a financial calculator:

FV= 1,000

PV= -1,090

N= 36

PMT= 30

Press the CPT key and I/y to compute the yield to maturity.

The value obtained is 2.61

Therefore, the pretax cost of debt is 2.61%*2=5.22%.

After tax cost of debt= Before tax cost of debt*(1- tax)

                                        = 5.22%*(1 – 0.22)

                                        = 4.07%.

In case of any query, kindly comment on the solution


Related Solutions

Advance, Inc., is trying to determine its cost of debt. The firm has a debt issue...
Advance, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 18 years to maturity that is quoted at 108 percent of face value. The issue makes semiannual payments and has a coupon rate of 4 percent. What is the company's pretax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) alculate Pretax cost of debt as % If the...
Waller, Inc., is trying to determine its cost of debt. The firm has a debt issue...
Waller, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 8 years to maturity twith a current price of $1042. The issue makes semiannual payments and has coupon rate of 8 percent. If the tax rate is 0.36, what is the pretax cost of debt? Enter the answer with 4 decimals (e.g. 0.0123)
Waller, Inc., is trying to determine its cost of debt. The firm has a debt issue...
Waller, 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 110 percent of face value. The issue makes semiannual payments and has an embedded cost of 9 percent annually. Use TVM to solve part (A). Required: (a) What is the company's pretax cost of debt? (Do not round your intermediate calculations.) (b) If the tax rate is 34 percent, what is the aftertax cost...
Viserion, Inc., is trying to determine its cost of debt. The firm has a debt issue...
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%
Waller, Inc., is trying to determine its cost of debt. The firm has a debt issue...
Waller, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 10 years to maturity that is quoted at 97 percent of face value. The issue makes semiannual payments and has an embedded cost of 12 percent annually. Required: (a) What is the company's pretax cost of debt? (Do not round your intermediate calculations.) (b) If the tax rate is 37 percent, what is the aftertax cost of debt? (Do not round your...
Waller, Inc., is trying to determine its cost of debt. The firm has a debt issue...
Waller, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 16 years to maturity that is quoted at 92 percent of face value. The issue makes semiannual payments and has an embedded cost of 10 percent annually. 1) What is the company's pretax cost of debt? 2) If the tax rate is 38%, what is the after tax cost of debt?
Waller, Inc., is trying to determine its cost of debt. The firm has a debt issue...
Waller, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 12 years to maturity that is quoted at 109 percent of face value. The issue makes semiannual payments and has an embedded cost of 10 percent annually.    Required:    (a) What is the company's pretax cost of debt? (Do not round your intermediate calculations.) Options: 9.21% 8.33% 10.20% 9.12% 8.77%    (b) If the tax rate is 34 percent, what is...
Waller, Inc., is trying to determine its cost of debt. The firm has a debt issue...
Waller, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 13 years to maturity that is quoted at 107 percent of face value. The issue makes semiannual payments and has an embedded cost of 6 percent annually. (1) What is the company's pretax cost of debt? (Do not round your intermediate calculations.) a) 6.20% b) 5.51% c) 5.46% d) 4.99% e) 5.25% 2) If the tax rate is 36 percent, what is...
Waller, Inc., is trying to determine its cost of debt. The firm has a debt issue...
Waller, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 16 years to maturity that is quoted at 91 percent of face value. The issue makes semiannual payments and has an embedded cost of 10 percent annually.
Waller, Inc., is trying to determine its cost of debt. The firm has a debt issue...
Waller, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 14 years to maturity that is quoted at 96 percent of face value. The issue makes semiannual payments and has an embedded cost of 9 percent annually. Required: (a) What is the company's pretax cost of debt? (Do not round your intermediate calculations.) (b) If the tax rate is 34 percent, what is the aftertax cost of debt? (Do not round your...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT