Question

​(Computing the cost of​ debt) The Shiloh Corporation is contemplating a new investment that it plans to finance using​ one-third debt. The firm can sell new ​$1,000 par value bonds with a 15​-year maturity and a coupon interest rate of 12.1 percent​ (with interest paid​ semiannually) at a price of ​$951 If the company is in a 34 percent tax​bracket, what is the​ after-tax cost of capital for the​ bonds?

The​ after-tax cost of debt is nothing​%. ​(Round to two decimal​ places.)

Answer 1

Before tax cost of debt			=	=rate(nper,pmt,pv,fv)*2
			=	12.84%
Where,
rate	Before tax cost of debt				?
nper	Number of period				30
pmt	Semi annual coupon		1000*12.1%*.5		$       60.50
pv	Current Price				$   -951.00
fv	Face value				$ 1,000.00
After tax cost of debt			=	Before tax cost of debt*(1-Tax rate)
			=	12.84%	*	(1-0.34)
			=	8.48%