ICU Window, Inc, is trying to determine its cost of debt. The firm has a debt is

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 109 5 percent of face value. The issue makes semiannual payments and has an embedded cost of 8 percent annually What is the company's pretax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places,.g.32.16.) Pretax cost of debt If the tax rate is 34 percent, what is the aftertax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places,.g 32.16.) Aftertax cost of debt

Explanation / Answer

1 Face value (FV) $                                  1,000 2 Coupon rate 8.00% 3 Number of compounding periods per year                                               1 1*2/3 Interest per period (PMT) $                                  80.00 Bond price (PV) $                          (1,095.00) 4 Number of years to maturity 10 5 = 4*3 Number of compounding periods till maturity (NPER)                                             10 Bond yield to maturity RATE(NPER,PMT,PV,FV) Bond yield to maturity 6.67% (Pre-tax cost of debt) Bond yield to maturity 4.40% (After-tax cost of debt) 6.67%*(1-34%)

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