The Cost of Capital: A 10-year, 14% semiannual coupon bond sells for $1,153.72 (par value = $1,000). The corporate tax rate is 30%. What is the after-tax cost of debt?
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Step 1
The YTM is the internal rate of return (IRR) of the bond, which is the discount rate that makes the present value of the bond's cash flows equal to its price. The bond pays semiannual coupons, so the coupon payment is 14%/2 = 7% of the par value, which is $70. Show more…
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