ADK has 30,000 15-year 9% annual coupon bonds outstanding. If the bonds currently sell for 111% of par and the firm pays an average tax rate of 36%, what will be the before-tax and after-tax component cost of debt?

Question

Quizplus · Accepted Answer

The before-tax cost of debt is the yield to maturity, which is 7.74%. The after-tax cost of debt is the yield to maturity multiplied by (1 - tax rate), which is 4.95%.

ADK Has 30,000 15-Year 9% Annual Coupon Bonds Outstanding