Question

KatyDid Clothes has a $120 million (face value) 30-year bond issue selling for 101 percent of...

KatyDid Clothes has a $120 million (face value) 30-year bond issue selling for 101 percent of par that carries a coupon rate of 9 percent. Assume the Par Value of each bond is $1,000 and semiannual compounding.

What would be Katydid’s before-tax component cost of debt?

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Answer #1


Before-tax cost of debt = Yield = 8.9039%

Calculation:

Using financial calculator BA II Plus - Input details:

#

FV = Future Value / Face Value =

-$120.00

PV = Present Value = 120 x 101%

$121.20

N = Number of years remaining x frequency = 30 x 2 =

60

PMT = Payment = Coupon / frequency =

-$5.40

CPT > I/Y = Rate per period or YTM per period =

                  4.4520

Convert Yield in annual and percentage form = Yield*frequency / 100 =

8.9039%
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