1.The Richardson Oil Company is considering issuing additional debt. They wish to use the yield on their existing debt as a guide to the cost of new debt. They currently have a zero-coupon bond outstanding that has five years to maturity and a current market price of 74, or $747.50 per $1,000 par value. Use the Approximate Approach

a.If Richardson's marginal tax rate is 20%, what is the cost of debt?

b. If Richardson's marginal tax rate is 30%, what is the cost of debt?

Answer rating: 100% (QA)

To calculate the cost of debt using the yield on existing debt we can use the Approximate Approach a... View the full answer