ICU Window, Inc., is trying to determine its cost of debt. The firm has a debt i
ID: 2769005 • Letter: I
Question
ICU Window, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with eight years to maturity that is quoted at 114.5 percent of face value. The issue makes semiannual payments and has an embedded cost of 10 percent annually.
What is ICU’s pretax cost of debt? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)
If the tax rate is 34 percent, what is the aftertax cost of debt? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)
ICU Window, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with eight years to maturity that is quoted at 114.5 percent of face value. The issue makes semiannual payments and has an embedded cost of 10 percent annually.
Requirement 1:What is ICU’s pretax cost of debt? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)
Requirement 2:If the tax rate is 34 percent, what is the aftertax cost of debt? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)
Explanation / Answer
a)
pretax cost of debt = 10%
b)
after tax cost of debt = 10 * (1-0.34)
=6.60%