Thalin Inc. has decided to extend its current product line. To finance the project, the firm is considering issuing a ten-year, 10% coupon bond. The firm has made it public that its target debt-to-equity ratio of 30% is not going to change in the forseeable future. Two years ago the firm issued a twelve-year, 10% coupon bond to finance a similar project. The current market price of the bond is $1,065. Assuming a tax rate of 40%, what is Thalin's before-tax and after-tax cost of debt?

Chapter 10 Edition 5 Problem 3, Page 356 Instructions After reading the problem, enter the values in the light blue-shaded cells. Then, calculate the before-tax and after tax cost of debt. Thalin Inc. has decided to extend its current product line. To finance the project, the firm is considering issuing a ten-year, 10% coupon bond. The firm has made it public that its target debt-to-equity ratio of 30% is not going to change in the forseeable future. Two years ago the firm issued a twelve-year, 10% coupon bond to finance a similar project. The current market price of the bond is $1,065. Assuming a tax rate of 40%, what is Thalin's before-tax and after-tax cost of debt? Given: New bond maturity (yrs) Coupon rate Target debt-to-equity ratio Face (par) value Tax rate Current price 10 10% 30% $1,000 40% $1,065 What is the cost of debt? PMT PV Solution: cost of debt (before tax You can solve the problem with Excel by using the RATE function. Solution: cost of debt (after tax