Answered: XYZ has an outstanding bond. It's a 5%…

XYZ has an outstanding bond. It's a 5% semiannual coupon bond maturing in 5 years with a par value of $100 and is trading at $95. Income tax rate is 25%. Calculate the after-tax cost of debt for XYZ.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter6: Fixed-income Securities: Characteristics And Valuation

Section: Chapter Questions

Problem 8P

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Question

XYZ has an outstanding bond. It's a 5% semiannual coupon bond maturing in 5 years with a par value of $100 and is trading at $95. Income tax rate is 25%.

Calculate the after-tax cost of debt for XYZ.

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