Please show steps WITHOUT using FINANCIAL CALULATOR ICU Window, Inc., is trying

Question

Please show steps WITHOUT using FINANCIAL CALULATOR

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 116.5 percent of face value. The issue makes semiannual payments and has an embedded cost of 10.8 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, e.g., 32.16.) Pretax cost of debt %

If the tax rate is 35 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, e.g., 32.16.) Aftertax cost of debt %

Explanation / Answer

$1,165 = $54*(PVIFAR%,16) + $1,000*(PVIFR%,16)

1165=54*(1-(1+r/2)^-16)/(r/2)+1000*1/(1+r/2)^16

Solve R we get YTM = 7.97%

or Using Excel Rate

NPER =8*2

pMT =1000*10.8%/2

PV =-1165

FV =1000

YTM=RATE(8*2,1000*10.8%/2,-1165,1000)*2 =7.97%

Aftertax cost of debt % =7.97%*(1-.35)=5.18%

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