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Posted on Jun 24, 2024

The WeLoveBondValuation 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 WeLoveBondValuation 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 $800.20 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?

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