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P93 Debt Cost of Capital for Debt with Maturity Greater than One Year: Assume the company issues debt with the following characteristics: Face value of

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P93 Debt Cost of Capital for Debt with Maturity Greater than One Year: Assume the company issues debt with the following characteristics: Face value of debt (in millions) . . . . .. $100 Coupon interest rate (paid annually). . . . 12% 5 Years to maturity . . $75 Issue price . . . . . 40% Recovery rate (all years) . . . . . (Recovery rate is for the principal plus interest for the year of default) 30% Probability of default- Year 1. ... . 25% Probability of default-Year 2. . . .. . 20% Probability of default-Year 3. . ... . 15% Probability of default-Year 4. . . . 10% Probability of default- Year 5. . . . .. Calculate the yield to maturity, the cost of debt, and the expected default loss for this debt issue

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