ICU Window, Inc., is trying to determine its cost of debt. The firm has a debt i
ID: 2634833 • Letter: I
Question
ICU Window, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with ten years to maturity that is quoted at 117.5 percent of face value. The issue makes semiannual payments and has an embedded cost of 11.2 percent annually.
What is ICU
ICU Window, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with ten years to maturity that is quoted at 117.5 percent of face value. The issue makes semiannual payments and has an embedded cost of 11.2 percent annually.
Explanation / Answer
1175 = 56 * PVIFA(r%,20) + 1000 * PVIF(r%,20)
r= 4.28%
pretax cost of debt = 2 * r = 8.56%
after tax cost of debt = 8.56% * (1-0.3) = 6.00%