Olympic Sports has two issues of debt outstanding. One is a 6% coupon bond with a face value of $39 million, a maturity of 10 years, and a yield to maturity of 7%. The coupons are paid annually. The other bond issue has a maturity of 15 years, with coupons also paid annually, and a coupon rate of 7%. The face value of the issue is $44 million, and the issue sells for 90% of par value. The firm's tax rate is 35%. a. What is the before-tax cost of debt for Olympic? b. What is Olympic's after-tax cost of debt?
Debenture Valuation
A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as the ‘coupon rate.’ Debentures are documented in an indenture, clearly specifying the type of debenture, the rate and method of interest computation, and maturity date.
Note Valuation
It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:
Olympic Sports has two issues of debt outstanding. One is a 6% coupon bond with a face value of $39 million, a maturity of 10 years, and a yield to maturity of 7%. The coupons are paid annually. The other bond issue has a maturity of 15 years, with coupons also paid annually, and a coupon rate of 7%. The face value of the issue is $44 million, and the issue sells for 90% of par value. The firm's tax rate is 35%.
a. What is the before-tax cost of debt for Olympic?
b. What is Olympic's after-tax cost of debt?
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