Rockingham Motors issued a 30-year, 8 percent semiannual bond 3 years ago. The bond currently sells...
Rockingham Motors issued a 30-year, 8 percent semiannual bond 3 years ago. The bond currently sells for 103.1 percent of its face value. The company's tax rate is 34 percent. What is the aftertax cost of debt?
Homework Answers
| 1 | Face value (FV) | $ 1,000 |
| 2 | Coupon rate | 8.00% |
| 3 | Number of compounding periods per year | 2 |
| 1*2/3 | Interest per period (PMT) | $ 40.00 |
| Bond price (PV) | $ (1,031.00) | |
| 4 | Number of years to maturity | 27 |
| 5 = 4*3 | Number of compounding periods till maturity (NPER) | 54 |
| Bond yield to maturity | RATE(NPER,PMT,PV,FV)*2 | |
| Bond yield to maturity | 7.72% | |
| (Pre-tax cost of debt) | ||
| Bond yield to maturity | 5.10% | |
| (After-tax cost of debt) | 7.72%*(1-34%) |
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