Tangshan Mining is considering issuing long-term debt.The debt would have a 30 year maturity and a 6 percent coupon rate and make semiannual coupon payments.In order to sell the issue,the bonds must be underpriced at a discount of 1 percent of face value.In addition,the firm would have to pay flotation costs of 1 percent of face value.The firm's tax rate is 21 percent.Given this information,the after-tax cost of debt for Tangshan Mining would be ________.

Question

Quizplus · Accepted Answer

The after-tax cost of debt is calculated using the formula: (Coupon Rate * (1 - Tax Rate)) / (1 - Discount - Flotation Costs). Here, the coupon rate is 6%, the tax rate is 21%, and the total discount and flotation costs are 2% (1% each). The after-tax cost of debt is approximately 4.86%.

Tangshan Mining Is Considering Issuing Long-Term Debt