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    Calculating YTM and cost of debt

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    A company's 6% coupon rate, semiannual payment, $1,000 par value bond that matures in 30 years sales at a price of $515.16. The company's federal-plus-state-tax rate is 40%.What is the firm's component cost of debt for purposes of calculating the WACC? (Hint: Base your answer on the nominal rate).

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    https://brainmass.com/business/bond-valuation/calculating-ytm-and-cost-of-debt-240084

    Solution Preview

    Please refer attached file better clarity of tables and formulas.

    Solution

    Semi annual coupon=1000*6%/2=$30.00
    Price of bond=$515.16
    No. of coupon payments=30*2=60

    Let us see cash flows throughout 30 years or 60 semi annual periods
    End of period Cash Flow
    0 $(515.16)
    1 30
    2 30
    3 30
    4 30
    5 30
    6 30
    7 30
    8 30
    9 30
    10 ...

    Solution Summary

    Solution describes the steps to calculate yield to maturity and after tax cost of debt.

    $2.19

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