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Computing the After-Tax Weighted-Average Cost of Debt

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Calculating the Cost of Debt

Ying Import has several bond issues outstanding, each making semiannual interest payments. The bonds are listed in the following table. If the corporate tax rate is 31 percent, what is the aftertax cost of Ying's debt? (Round your answer to 2 decimal places, e.g. 32.16.)

Bond Coupon Rate Price Quote Maturity Face Value
1 6.5% 104 7years $20,000,000
2 7.2 113 9years 36,000,000
3 6.7 104 18years 46,000,000
4 8.2 118 30years 62,000,000

Aftertax cost of debt:_______percent

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Solution Summary

Using an Excel spreadsheet, this solution describes the procedures for computing a company's after-tax cost of debt when it has several different bond issues outstanding.

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The yield to maturity of a debt instrument is the rate which equalizes its purchase price (present value) with the periodic interest payments (an annuity) and the terminal payment of the face value (the future value of a lump-sum). For instance, for Bond #1, the ...

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