ICU Window, Inc., is trying to determine its cost of debt. The firm has a debt i
ID: 2635015 • Letter: I
Question
ICU Window, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with nine years to maturity that is quoted at 113.0 percent of face value. The issue makes semiannual payments and has an embedded cost of 9.4 percent annually.
What is ICU
ICU Window, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with nine years to maturity that is quoted at 113.0 percent of face value. The issue makes semiannual payments and has an embedded cost of 9.4 percent annually.
Explanation / Answer
1130= 47PVIFA(Kd,18)+1000PVIF(Kd,18)
Kd= (2x3.70)= 7.4%
The correct amswer is 7.40%
After tax cost of debt= 7.4x(1-.38)= 4.59%
The correct amswer is 4.59%