Question: Caterpillar Industries sold a 12 year $1,000 face value bond with a 14 percent coupon rate. Interest is paid annually. After flotation costs, Caterpillar received

Caterpillar Industries sold a 12 year $1,000 face value bond with a 14 percent coupon rate. Interest is paid annually. After flotation costs, Caterpillar received $1,130 per bond. Compute the after-tax cost of debt for these bonds if the firm's marginal tax rate is 21 percent.

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To calculate the aftertax cost of debt for Caterpillar Industries bonds we first need to understand a few key concepts The cost of debt is the rate of return that a company must pay to its bondholders ... View full answer

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