Ask Question
19 April, 15:26

Icu window, inc., is trying to determine its cost of debt. the firm has a debt issue outstanding with ten years to maturity that is quoted at 113.5 percent of face value. the issue makes semiannual payments and has an embedded cost of 9.6 percent annually. what is the company's pretax cost of debt?

+2
Answers (1)
  1. 19 April, 15:29
    0
    Pre-tax cost of debt is calculated as -

    Yield to maturity = [ Coupon payment + (Face value - Price) / Number of periods ] / [ (Face value - Price) / 2 ]

    Coupon payment = 9.6 % / 2 * 1000 = $ 48

    Face Value = 1000

    Price = 113.5 % * $ 1000 = $ 1135

    Number of periods = 20 (i. e. 10 years * 2)

    Yield to maturity = [ $ 48 + ($ 1000 - $ 1135) / 20] / [ ($ 1000 + $ 1135) / 2 ]

    Yield to maturity = 3.86 %

    Annual yield to maturity = 3.86 % * 2 = 7.72 %
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “Icu window, inc., is trying to determine its cost of debt. the firm has a debt issue outstanding with ten years to maturity that is quoted ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers