American Dental Laser is selling a 10 year $1,000 face value bond with a 8% coupon rate. Interest is paid annually. The price to the public is $820 and the issue costs per bond are $10 each. Compute the pretax cost of debt for these bonds.

Question

Quizplus · Accepted Answer

Solution: $810 = $80(PVIFA_kd,10) + $1000(PVIF_kd,10) try 11%: $80(5.889) + $1000(0.352) = $823.12 try 12%: $80(5.650) + $1000(0.322) = $774.00 kd =11% +($13.12/$13.12 + $36)(12% - 11%) = 11.3%

American Dental Laser Is Selling a 10 Year $1,000 Face