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Oberon inc. has a 25 million face value 12 year bond issue selling for 98% of...

Oberon inc. has a 25 million face value 12 year bond issue selling for 98% of par that pays an annual coupon of 8.05%, what would be the Oberon before tax components cost of debt

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Answer #1

The question is solved by calculating the yield to maturity.

Information provided:

Par value= future value= $1,000

Coupon rate= 8.05%

Coupon payment= 0.0805*1,000= $80.50

Time= 12 years

Current price= present value= 98%*$1,000 = $980

The yield to maturity is calculated by entering the below in a financial calculator:

FV= 1,000

PV= -980

N= 12

PMT= 80.50

Press the CPT key and I/Y to compute the yield to maturity.

The value obtained is 8.3198

Therefore, the before tax cost of debt  is 8.32%.

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