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After tax cost of debt finance and accounting

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A firm can issue $1000 par value bond that pays $100 per year in interest at a price of $980. The bond will have a 5-year life. The firm is in a 35% tax bracket. What is the aftertax cost of debt? A) 10.33% B) 10.20% C) 6.63% D) 6.84%

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The solution explains the calculation of after tax cost of debt.

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We first find the YTM of the bond which is the before tax cost of debt. The YTM is the discount rate that will make the present ...

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