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Cost of debt question

The pretax cost of debt, the aftertax cost of debt, and determining the importance of pretax versus the aftertax cost of debt.

Here's some background information:

Previously, I issued a 30 year, 10% semiannual bond about 7 years ago. The bond is selling at 108% of the face value and the tax rate is 35%

Thank you

Solution Preview

The pretax cost of debt, the aftertax cost of debt, and determining the importance of pretax versus the aftertax cost of debt.

Here's some background information:

Previously, I issued a 30 year, 10% semiannual bond about 7 years ago. The bond is selling at 108% of the face value and the tax rate is 35%.

The pretax cost of debt is the yield to maturity of the bond.

We need to calculate how much the bonds have been issued by using the formula as follows: -

where B is the issued price
C is the coupon ...

Solution Summary

This solution is comprised of a detailed explanation to determine the importance of pretax versus the aftertax cost of debt.

$2.19