A firm issues a 10 year debt obligation that bears a 12% coupon rate and gives the

Question:

A firm issues a 10 year debt obligation that bears a 12% rate and gives the investor the right to put the bond back to the issuer at the end of the fifth year at 103% of its face amount. The issue has no sinking fund. Interest is paid semiannually. The issuer’s tax rate is 34%.
(A). Calculate the after tax cost of debt, assuming the debt remains outstanding until maturity.
(B) Calculate the after tax cost of debt, assuming investors put the bond back to the firm at the end of the fifth year. (Note: Any unamortized issuance expenses and any redemption premium can be deducted for tax purposes in the year of redemption.)

Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a...