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%© BrainMass Inc. brainmass.com June 3, 2020, 7:41 pm ad1c9bdddf
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 ...
The solution explains the calculation of after tax cost of debt.