A company’s 8 percent coupon rate, paid semiannually, $1,000 par value bond which mature in 30 years sells at a price of $887. The marginal tax rate is 40 percent. What is the firm’s after tax cost of debt?

A company’s 8 percent coupon rate, paid semiannually, $1,000 par value bond which mature in 30 years sells at a price of $887. The marginal tax rate is 40 percent. What is the firm’s after tax cost of debt?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter11: Determining The Cost Of Capital

Section: Chapter Questions

Problem 14P

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Definition Definition Calculates the present value of a bond's expected future periodic coupon payments. Bond valuation determines the theoretical fair value of a particular bond and helps investors estimate what rate of return they could expect. The bond's theoretical fair value is computed by discounting the future cash flows or coupon payments by an applicable discount rate.

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