Question
The BondsRUs Company needs to estimate the cost of debt in their WACC calculation. The 15-year bond issue would have $1,000 par value, 5% coupon
The BondsRUs Company needs to estimate the cost of debt in their WACC calculation. The 15-year bond issue would have $1,000 par value, 5% coupon rate, and pay interest semiannually. The bonds would sell for $939.65 per bond.
a) What is the cost of debt?
b) If the marginal tax rate of the company is 21%, what is the after-tax cost of debt to be used in the WACC calculation?
Please show all work using the TI BAII Plus Calculator like the example below:
Make sure that 2nd I/Y which is P/Y is set to 1.0. Make sure that 2nd PMT which is BGN is set to END (not BGN).
10 N 7 I/Y 50 PMT 1000 FV Cpt PV $859.53 is todays value of the bond.
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Fundamentals of Investments, Valuation and Management
Authors: Bradford Jordan, Thomas Miller, Steve Dolvin
8th edition
1259720697, 1259720691, 1260109437, 9781260109436, 978-1259720697
