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zhuklara [117]
3 years ago
12

Easy Slider Inc. sold a 15-year $1,000 face value bond with a 10% coupon rate. Interest is paid annually. After flotation costs,

Easy Slider received $928 per bond. Compute the after-tax cost of debt for these bonds if the firm's marginal tax rate is 40%?
Mathematics
1 answer:
Softa [21]3 years ago
6 0

Answer:

6.6%

Step-by-step explanation:

We find the cost of the bond. Yield to maturity is the yield for bond holder but cost for the  issuer like Easy Slider.

Formula is

P=CP(1-(1+x)^-n)/x + FV/(1+x)^n

where P is the price of bond in the market. So, the selling price of Easy Slider Inc bond is 928

CP= coupon payment. Here, CP is 10% of 1000. So, $100

FV= Face value. Here, FV is $1000

n= maturity of the bond. Here, n=15

x= cost of the bond before tax

putting the value in the equation

928=100(1-(1+x)^-15)/x + 1000/(1+x)^15

solving for x, we get 0.1100

Now, if we find out after tax then

0.1100(1-T)= After tax cost

0.1100(1-0.4)

0.066 or 6.66%

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Look below

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Conversion a mixed number 3 1/

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To find new numerator:

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c) Write a previous answer (new numerator 13) over the denominator 4.

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Conversion a mixed number 2 1/

3

to a improper fraction: 2 1/3 = 2 1/

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Add: 13/

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For adding, subtracting, and comparing fractions, it is suitable to adjust both fractions to a common (equal, identical) denominator. The common denominator you can calculate as the least common multiple of both denominators - LCM(4, 3) = 12. In practice, it is enough to find the common denominator (not necessarily the lowest) by multiplying the denominators: 4 × 3 = 12. In the next intermediate step, the fraction result cannot be further simplified by canceling.

In words - thirteen quarters plus seven thirds = sixty-seven twelfths.

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I hope this helps!
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