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natima [27]
3 years ago
14

This problem has been solved!

Business
1 answer:
9966 [12]3 years ago
3 0

Answer:

Consider the following calculation

Explanation:

a) Net proceeds from sale of Bond

     1010-30=980

b)At period 0= 1010-30=980

between Period 1 to 15 = outflow of 1000*0.12= - 120

At the end of 15 years =1000

ie. Period         0       1-15         15

   CF             980     -120      -1000

c) Before tax cost of Debt

=RATE(15,120,-980,1000)= 12.30%

After Tax cost of Debt =12.3 *(1-0.4)=7.379%=7.38%

d) approximate method= 120 + (1000-980)/15    = 12.26%

  (980+1000)/2

after tax cost of debt =12.26 *(1-0.4)=7.36%

e) The calculation method is more accurate than approximate method, however the results of approximate are fairly accurate but the calculation method is better.      

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