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Olympic Sports: Issues of Debt Outstanding

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Olympic Sports have 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. The other bond issue has a maturity of 15 years, with coupons also paid annually, and a coupon rate of 10 percent. The face value of the issue is $25 million, and the 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 Sports?

b. What is Olympic's after-tax cost of debt?

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Solution Summary

This solution provides a detailed step by step explanation of how to calculate the before-tax and after-tax cost of debt in the given finance problem.

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a. What is the before-tax cost of debt for Olympic Sports?
b. What is Olympic's after-tax cost of ...

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