Explore BrainMass

Explore BrainMass

    Ying Import bond issues- after tax cost of debt

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Ying Import has several bond issuances outstanding, each making semiannual interest payments. The bonds are listed in table attached. If the corporate tax rate is 34%, what is the aftertax cost of Ying's debt?

    Coupon Price Face
    Bond Rate Quote Maturity Value
    1 8.00% $106.38 5 years 10,000,000
    2 7.50% $98.00 8 years 45,000,000
    3 6.40% $82.00 15 ½ years 35,000,000
    4 9.75% $101.50 25 years 45,000,000

    See data on attached spreadsheet

    © BrainMass Inc. brainmass.com June 3, 2020, 4:46 pm ad1c9bdddf
    https://brainmass.com/business/interest-rates/ying-import-bond-issues-after-tax-cost-of-debt-3382

    Attachments

    Solution Preview

    The solution is in the attached spreadsheet

    Ying Import
    Coupon Price Face No of bonds= Face value/ 100) Market value= No of bondsX Price quote Weightage= Market value/ Total value Cost of debt Weigtage X Cost of debt
    Bond Rate Quote Maturity Value
    1 8.00% $106.38 5 ...

    Solution Summary

    The solution calculates the after tax cost of debt. The company has issued a number of bonds with different maturities and coupon rates. First the yield to maturity (YTM) of these bonds is calculated and then the weighted average yield is calculated. Using the tax rate, after tax cost of debt is calculated.

    $2.19

    ADVERTISEMENT