Mudvayne, Inc. is trying to determine its cost of debt. The firm has a debt issue outstanding with 18 years to maturity that is quoted at 107 percent of face value. The issue makes semiannual payments and has an embedded cost of 6 percent annually. What is the company's pretax cost of debt? If the tax rate is 35 percent, what is the aftertax cost of debt?

Excel Sheet:

A B

1 Settlement 1/1/00

2 Maturity 1/1/18

3 Price (% of Par) 107

4 Coupon rate 6%

5 Payments per year 2

6 Tax rate 35%

Do not hardcode values, need formulas. (I've already tried this formula =RATE(36,30,-1070,1000,0), it doesn't work. It should work, but it doesn't. I don't think the system likes how I've put in the formula, maybe it's wanting the formula a specific way).

Pretax Cost - ?

Aftertax cost of debt - ?

Answer rating: 100% (QA)

To calculate the pretax cost of debt well use the yield to maturity YTM formula The YTM is the inter... View the full answer