Assume that Dell issued 30-year bonds, 8% coupon rate, semiannual, 7 years ago. The bond currently sells for 108% of face value. The company's tax rate is 35%.
1. What is the pretax cost of debt?
2. What is the after-tax cost of debt?
3. Which is more important and why?
1. The pretax cost is the YTM on the existing bonds. The YTM is the discounting rate that will make the present value of interest and ...
The solution explains how to calculate the before and after tax cost of debt and which is more important