Beckham Corporation has semiannual bonds outstanding with 13 years to maturity and the bonds are currently priced at $746.16. If
the bonds have a coupon rate of 8.5 percent, then what is the after-tax cost of debt for Beckham if its marginal tax rate is 35%
1 answer:
Answer:
8.125%
Explanation:
Given that,
Present value = $746.16
Assuming figure - Future value or Face value = $1,000
PMT = 1,000 × 8.5% ÷ 2 = $42.5
NPER = 13 years × 2 = 26 years
The formula is shown below:
= Rate(NPER;PMT;-PV;FV;type)
The present value come in negative
So, after solving this,
1. The pretax cost of debt is 6.25% × 2 = 12.50%
2. And, the after tax cost of debt would be
= Pretax cost of debt × ( 1 - tax rate)
= 12.50% × ( 1 - 0.35)
= 8.125%
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