Easy Slider recently sold a 15 year $1,000 face value bond at a discount for $700 that net the firm $692 after flotation costs. The low coupon bond has a 6% coupon with interest paid semiannually. If Easy Slider has a marginal tax rate of 40 percent, what is its after-tax cost of debt for these bonds?

Question

Quizplus · Accepted Answer

Solution: (Try 5% semiannually ): $692 = $30(15.373) + $1,000(0.231) = $692 Therefore k_d = 10% and k_i = 10%(1 - 0.4) = 6%

Easy Slider Recently Sold a 15 Year $1,000 Face Value