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Andreas93 [3]
3 years ago
5

Hi Tech Products has 35,000 bonds outstanding that are currently quoted at 102.3. The bonds mature in 11 years and carry a 9 per

cent annual coupon. What is the firm's aftertax cost of debt if the applicable tax rate is 35 percent?
Business
1 answer:
Xelga [282]3 years ago
6 0

Answer:

aftertax cost of debt =5.63%

Explanation:

fisrt we need to know the formula for the yield to maturity

Yield to maturity (YTM)

YTM= ( I+(F-P)/n ) / ( 0.6P +0.4F)

YTM=  (9 + ( 100-102.3) / 11 ) / (0.6*102.3 + 0.4*100)

YTM= 0.0867

YTM= 8.67%

after taxes we have...

8.67% (1-0.35%)

=0.0563

=5.63%

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