Airborne Airlines Inc. has a $1,000 par value bond outstanding with 25 years to maturity. The bond

Question:

Airborne Airlines Inc. has a $1,000 bond outstanding with 25 years to The bond carries an annual interest payment of $88 and is currently selling for $950. Airborne is in a 40 percent tax bracket. The firm wishes to know what the aftertax cost of a new bond issue is likely to be. The yield to on the new issue will be the same as the yield to on the old issue because the risk and date will be similar.
a. Compute the yield to on the old issue and use this as the yield for the new issue.
b. Make the appropriate tax adjustment to determine the aftertax cost of debt.

Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest... Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...