Corporate Finance Q92

0. ACME Minerals has determined that it could issue at $750 a seven-year maturity bond that pays 9.5% coupon semi-annually with a face value of $1000. If the marginal tax rate applicable in the company is 30%, its aftertax cost of debt will most likely be:

Answer
Comment
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Option : B
Explanation : FV = $1000; PMT = $47.5; N = 14; PV = $750, CPT I/Y I/Y = 7.7361%;
YTM = 7.7361% * 2 = 15.47220%
After-tax cost of debt: Rd (1 - t) = 15.47220% (1 – 0.30) = 10.8305%.

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