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sass Corp
sass Corp. had boobs outstanding with 13 years to maturity and are currently priced at $746.16. if bonds have a coupon rate of 8.5 percent, then what is the after tax cost for debt for sass if it's marginal tax rate is 34%
Expert Solution
We can calculate the pretax cost of debt by using the following formula in excel:-
=rate(nper,pmt,-pv,fv)
Here,
Rate = Pretax cost of debt
Nper = 13 periods
Pmt = Coupon payment = $1,000*8.5% = $85
PV = $746.16
FV = $1,000
Substituting the values in formula:
= rate(13,85,-746.16,1000)
= 12.56%
After tax cost of debt = Pretax cost of debt * (1 - Tax rate)
= 12.56% * (1 - 34%)
= 8.29%
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