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Bezzdna [24]
3 years ago
11

Waller, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 20 years to maturity twith a c

urrent price of $854. The issue makes semiannual payments and has coupon rate of 5 percent. If the tax rate is 0.39, what is the aftertax cost of debt
Business
1 answer:
Gemiola [76]3 years ago
4 0

Answer:

The after-tax cost of debt : 3.90%.

Explanation:

The semi-annual coupon = 1,000 x 5% /2 = $25.

The before-tax cost of debt, denoted as i, is the yield to maturity of the company's debt, which is calculated as below:

(25/i) x [1 - (1+i)^-40] + 1,000/(1+i)^40 = 854 <=> i = 3.147%.

=> Because the debt is semi-annual compounded, we have the: Effective annual rate = Before-tax cost of debt =  ( 1+ 3.147%)^2 -1 = 6.39%.

=> After tax cost of debt = Before tax cost of debt x ( 1 - tax rate) = 6.39% x ( 1 - 0.39) = 3.90%.

So, the answer is 3.90%.

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3 years ago
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Aubey Aircraft recently announced that its net income increased sharply from the previous year, yet its net cash flow from opera
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8 0
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List one tip someone should follow before investing their money and explain.
jok3333 [9.3K]
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3 0
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A pay policy line Question 36 options: can be generated using a statistical method called regression analysis. can seldom provid
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