Mudvayne, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 11 years to maturity that is
quoted at 104 percent of face value. The issue makes semiannual payments and has an embedded cost of 4 percent annually. What is the company’s pretax cost of debt?
1 answer:
Answer:
3.56%
Explanation:
In this question, we use the Rate formula which is shown in the spreadsheet.
The NPER represents the time period.
Given that,
NPER = 11 × 2 = 22 years
Present value = $1,000 × 104% = $1,040
Future value = $1,000
PMT = 1,000 × 4% × (6 months ÷ 12 months) = $20
The formula is shown below:
= Rate(NPER;PMT;-PV;FV;type)
The present value come in negative
So, after solving this, the answer would be 3.56% ( 1.78 × 2)
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