Olympic Sports has two issues of debt outstanding. One is a 9% coupon bond with a face value of $38 million, a maturity of 15 years, and a yield to maturity of 10%. The coupons are paid annually. The other bond issue has a maturity of 20 years, with coupons also paid annually, and a coupon rate of 10%. The face value of the issue is $43 million, and the issue sells for 93% of par value. The firm's tax rate is 20%.
a. What is the before-tax cost of debt for Olympic? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Before-tax cost of debt %
b. What is Olympic's after-tax cost of debt? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) After-tax cost of debt %
Olympic Sports has two issues of debt outstanding. One is a 9% coupon bond with a face value of $38 million, a maturity of 15 years, and a yield to maturity of 10%. The coupons are paid annually. The other bond issue has a maturity of 20 years, with coupons also paid annually, and a coupon rate of 10%. The face value of the issue is $43 million, and the issue sells for 93% of par value. The firm's tax rate is 20%.
a. What is the before-tax cost of debt for Olympic? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Before-tax cost of debt %
b. What is Olympic's after-tax cost of debt? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) After-tax cost of debt %
Related questions
Jiminy's Cricket Farm issued a 30-year, 7 percent semiannual bond 6 years ago. The bond currently sells for 90 percent of its face value. The book value of this debt issue is $98 million. In addition, the company has a second debt issue, a zero coupon bond with 9 years left to maturity; the book value of this issue is $68 million, and it sells for 56.5 percent of par. The company’s tax rate is 38 percent.
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What is the total book value of debt? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars (e.g., 1,234,567).) |
| Total book value of debt | $ |
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What is the total market value of debt? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars (e.g., 1,234,567).) |
| Total market value | $ |
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What is the after-tax cost of the 7 percent coupon bond? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) |
| Aftertax cost of debt | % |
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What is the after-tax cost of the zero-coupon bond? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) |
| Aftertax cost of debt | % |
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What is the after-tax cost of debt? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) |
| Aftertax cost of debt | % |
