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sass Corp

Finance

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%

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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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