Suppose we have a bond issue currently outstanding that has 25 years left to mat

Question

Suppose we have a bond issue currently outstanding that has 25 years left to maturity. The coupon rate is 9% and coupons are paid annually. The bond is currently selling for $968.72 per $1,000 bond. What is the before-tax cost of debt (YTM)?

5.00%

9.33%

10.0%

9.00%

Based on the information from Question 36, if the firm's marginal tax rate is 20%. What's the firm's after-tax cost of debt?________

3.58%

5.08%

6.32%

7.46%

5.00%

9.33%

10.0%

9.00%

Based on the information from Question 36, if the firm's marginal tax rate is 20%. What's the firm's after-tax cost of debt?________

3.58%

5.08%

6.32%

7.46%

Explanation / Answer

Coupon Rate 9% Par Value        1,000.00 Interest(1000*9%)              90.00 Price            968.72 YTM = Interest/Price YTM = 90/968.72 YTM = 9.3% Tax Rate 20% YTM = 9.3%(1-.2) YTM = 7.4%

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