Ask Experts Questions for FREE Help !
Ask
    Hope2003's Avatar
    Hope2003 Posts: 1, Reputation: 1
    New Member
    		  
    #1

    Dec 6, 2009, 04:48 PM
    How to calculate cost of debt
    Issuing a new 10 year, $1000 par, 6% annual coupon bonds. Market price of the bonds is $1045 each. Flotation expense on new bonds will be $10 per bond. Marginal tax rate is 30%. What is the pre-tax cost of debt for the newly-issued bonds?
    tomar69's Avatar
    tomar69 Posts: 1, Reputation: 1
    New Member
    		  
    #2

    Oct 28, 2010, 12:06 AM
    simply find the IRR of th cash inflows , while the cash out flow is price of the bond. The answer is 3.85% ( 102 is not the cash out flow as the market has valued the bond more because the YTM is less then the coupon rate.(Cetirus peribus)Use Excel.
Not your question? Ask your question View similar questions
 

Question Tools Search this Question
Search this Question:

Advanced Search

Add your answer here.


Check out some similar questions!

Calculate cost of debt [ 1 Answers ]

What is the formula to calculate cost of debt

How does one calculate after-tax cost of new debt [ 1 Answers ]

Here is the problem. How do I go about calculating the after-tax cost of new debt and common equity. Calculate the cost of equity and calculate weighted cost of capital. I am really confused on this. The following tabulation gives earnings per share figures for the Foust Company during the...

How do you calculate cost of debt [ 1 Answers ]

I have attached the question I was given. I know you can't give me an answer but can you at least help explain how to get the problem started. I keep drawing a blank when trying to start this question. Calculating Cost of Debt Jiminy's Cricket Farm issued a 30-year, 11 percent semi-annual...

View more questions Search