Question
A firm with a tax rate of 32% has two bonds issues. Issue A is 10,000 bonds, each with a face value of $1000 and
A firm with a tax rate of 32% has two bonds issues.
Issue A is 10,000 bonds, each with a face value of $1000 and each paying semi-annual coupons at a rate of 6.6% APR compounded semi-annually. These bonds have 4 years (8 coupon payments) remaining until maturity and are currently priced at $939.90 each.
Issue B is 15,000 bonds, each with a face value of $1000 and each paying semi-annual coupons at a rate of 8.4% APR compounded semi-annually. These bonds have 16 years (32 coupon payments) remaining until maturity and are currently priced at $724.48 each.
What is the after-tax cost of debt for the firm, stated as an EAR?
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Public Finance
Authors: Harvey Rosen, Robert Guell, Ted Gayer
9th Edition
0073511358, 9780073511351
