The cost of debt: PackMan company has bonds outstanding with nine years to maturity and are currently priced at $754.08. If the bonds have a coupon rate of 7.25 percent, then what is the after-tax cost of debt for Beckham if its company tax rate is 30 percent?

Question

Quizplus · Accepted Answer

The after-tax cost of debt is calculated using the formula: After-tax cost of debt = YTM * (1 - Tax rate). First, calculate the yield to maturity (YTM) using the bond price, coupon rate, and maturity. The YTM is approximately 11.825%. Then, apply the tax rate: 11.825% * (1 - 0.30) = 8.28%.

The Cost of Debt: PackMan Company Has Bonds Outstanding with Nine