Problem 11-9 Approximate yield to maturity and cost of debt [LO3] Airborne Airlines Inc. has a $1,000 par value bond outstanding with 25 years to maturity. The bond carries an annual interest payment of $88 and is currently selling for $950. Airborne is in a 40 percent tax bracket. The firm wishes to know what the aftertax cost of a new bond issue is likely to be. The yield to maturity on the new issue will be the same as the yield to maturity on the old issue because the risk and maturity date will be similar a. Compute the yield to maturity on the old issue and use this as the yield for the new issue. (Use the YIELD function in Excel). Input your answer as a percent rounded to 2 decimal places.) b. Makethe appropriate tax adjustment to determine the aftertax cost of debt. (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) Input variables: 1/1/00 1/1/25 0.088 (Input as a decimal) 95.000 Settlement date Maturity date Coupon rate Bond price (% of par) Face value (% of par) Coupons per year Tax rate Y is yield Kd-Y(1-T) 100 Tis coporate tax rate 0.40 Solution and Explanation: Bond yield b. Aftertax cost of debt