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Deep Discount Bonds - Husky Enterprises

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Husky Enterprises recently sold an issue of 10-year maturity bonds. The bonds were sold at a deep discount price of $615 each. After flotation costs, Husky received $604.50 each. The bonds have a $1,000 maturity value and pay $50 interest at the end of each year. Compute the after-tax cost of debt for these bonds if Huskys marginal tax rate is 40 percent.

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Solution Summary

The solution computes after-tax cost of debt for deep discounts bonds.

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After tax cost of debt = (Interest expense * ( 1-tax rate) + Issue ...

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