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Cost of debt using the approximation formula For each of the following $1,000-par-value bonds, assuming annual interest payment and a 40% tax rate, calculate the
| Cost of debt using the approximation formula | |||||||||||
| For each of the following $1,000-par-value bonds, assuming annual interest payment and a 40% tax rate, calculate the after-tax cost to maturity using the approximation formula. | |||||||||||
| Life (years) | Underwriting fee | Discount (-) or premium (+) | Coupon interest rate | Before-tax cost of debt | After-tax cost of debt | ||||||
| Bond | |||||||||||
| A | 20 | $25 | -$20 | 9% | 9.44% | 5.66% | |||||
| B | 16 | $40 | $10 | 10% | |||||||
| C | 15 | $30 | -$15 | 12% | |||||||
| D | 25 | $15 | Par | 9% | |||||||
| E | 22 | $20 | -$60 | 11% | |||||||
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