Ying Import has several bond issues outstanding, each making semiannual interest payments. The bonds are listed in
Question:
Ying Import has several bond issues outstanding, each making semiannual interest payments. The bonds are listed in the following table. If the corporate tax rate is 22 percent, what is the aftertax cost of the company’s debt?
Bond Coupon Rate Price Quote Maturity Face Value 1 4.00% 103.18 5 years $45,000,000 2 7.10 112.80 8 years 40,000,000 3 5.30 107.45 15.5 years 50,000,000 4 4.90 102.75 25 years 65,000,000
Step by Step Answer:
To calculate the aftertax cost of debt we need to first calculate the beforetax cost of debt using t...View the full answer
Fundamentals Of Corporate Finance
ISBN: 9781265553609
13th Edition
Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan
Related Video
Bond valuation is the process of determining the worth of a bond. It is based on the present value of the bond\'s future cash flows, which include coupon payments and the return of the bond\'s face value (or \"principal\") at maturity. The discount rate used in the calculation is directly tied to prevailing interest rates, and a rise in interest rates will decrease the present value of the bond and thus lower its price. Conversely, a fall in interest rates will increase the present value of the bond and raise its price. Interest rates serve as a benchmark for determining the value of a bond, as they determine the discount rate used in the bond valuation calculation. The most commonly used measure of interest rates is the yield to maturity (YTM), which represents the internal rate of return of an investment in a bond if the investor holds the bond until maturity and receives all scheduled payments. Yield to maturity is a function of the coupon rate, the current market price of the bond, the face value of the bond, and the number of years remaining until maturity. By comparing the yield to maturity of a bond to prevailing market interest rates, an investor can assess the relative value of the bond.
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