Explore BrainMass
Share

Explore BrainMass

    Olympic's before-tax and after-tax cost of debt

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    15. Cost of Debt. Olympic sports has two issues of debt outstanding. One is a 9 percent coupon bond with a face value of $20million, a maturity of 10 years, and a yield to maturity of 10 percent. The coupons are paid annually, and a coupon rate 10 percent. The face value of the issue is $25 million, and issue sells for 94 percent of par value. The firm's tax rate is 35 percent.
    a. What is the before-tax cost of debt for Olympic?
    b. What is Olympic's after-tax cost of debt?

    © BrainMass Inc. brainmass.com October 9, 2019, 10:20 pm ad1c9bdddf
    https://brainmass.com/business/bond-valuation/olympic-s-before-tax-and-after-tax-cost-of-debt-216522

    Solution Preview

    15. Cost of Debt. Olympic sports has two issues of debt outstanding. One is a 9 percent coupon bond with a face value of $20 million, a maturity of 10 years, and a yield to maturity of 10 percent. The coupons are paid annually, and a coupon rate 10 percent. The face value of the issue is $25 million, and issue ...

    Solution Summary

    This solution is comprised of a detailed explanation to answer what is the before-tax cost of debt for Olympic and Olympic's after-tax cost of debt.

    $2.19