contestada

Silver woods has some bonds outstanding which will expire in 20 years. The 8 percent semiannual bonds have a face value of $1,000 and are selling at 90 percent of par. If the tax rate is 21%. What is the after tax cost of debt? Please submit your final answer in the format of percentage. For example, if your final answer is 3.3%, you should submit 3.3

Respuesta :

Answer:

7.1

Explanation:

Interest rate = Coupon payment / Face value

8% semi annually will be 16% = 160 / 1000

At 90% of par, loan interest = 160 / 900

= 18% or 9% semi annually  

Therefore the after tax cost of debt which is given by kd(1-t) = 9% (1 – 0.21)

Cost of debt = 7.1% or 7.1