What is the before-tax cost of debt for Timberton's new bond issue selling for $850? The...

What is the before-tax cost of debt for Timberton's new bond issue selling for $850? The bonds mature in 20 years, pay annual interest on face value of $1,000 and the coupon rate is 8%, Question 28 options:

12.35%

7.83%

10.47%

9.73%

Expert Solution

Before Tax Cost of debt = The rate at which PV of Cash Outflows equals to Bond Price.

Before tax cost of debt = Rate at which least +ve NPV + [ NPV at that rate / change in NPV due to 1 % change ]

= 9% + [ 58.71 / 78.99 ] * 1%

= 9% + 0.73%

= 9.73%

Before tax cost of debt = Rate

jeff jeffy answered 1 year ago

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