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

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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?

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#### 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