A firm sold a 10-year bond issue 3 years ago. The bond has a 6.45% annual coupon and a $1,000face value. If the current market price of the bong is $951.64 and the tax rate is 35%, what is the after-tax cost of debt?O 4.64%O 4.19%O 4.95%O 4.41%O 4.78%

Face value (F) = $1000 Coupon payment (C) = 6.45% of $1000 = $64.5 Current market price (P0) =…

Answered: A firm sold a 10-year bond issue 3…

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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A firm sold a 10-year bond issue 3 years ago. The bond has a 6.45% annual coupon and a $1,000 face value. If the current market price of the bond is $1,000 (the bond is selling for its face or par value) and the tax rate is 40%, what is the after-tax cost of debt? [Hint: Recall that the after- tax cost of debt = before-tax cost times (1 - tax %3D rate).] O 3.87% O4.19% 4.95% O4.41% 4.78%
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