Company's noncallable bonds were issued several years ago and now have 20 years to maturity. These bonds have a 9.25% annual coupon, paid semiannually, sells at a price of $1,075, and has a par value of $1,000. If the firm's tax rate is 40%, what is the after-tax component cost of debt for use in the WACC calculation?

Please include on Excel spreadsheet.

step1:

calculate yield to maturity

=>

46.25 * [1-(1+YTM/2)-40]/YTM/2 + 1000/(1+YTM/2)40 = 1075

=>

YTM = 8.46%

cost of debt = 8.46% * (1-40%) = 5.08%