Viserion, Inc., is trying to determine its cost of debt. - YouTube

is trying to determine its cost of debt  the firm has a debt issue outstanding with  

23 years to maturity that is quoted at  103 percent of face value the issue makes  

semi-annual payments and has an embedded cost  of 6 percent annually what is the company's  

pre-tax cost of debt if the tax rate is 21 percent  what is the after tax cost of debt here in the  

question here in the question it is mentioned that  the bond has outstanding life that is 23 23 years  

and it is quoted at 103 percent of the face  value the face value of the bond is 1000  

and it is quoted one zero three percent of this  one thousand it makes semi-annual payments and the  

coupon rate is six percent annually i have copied  these value in microsoft excel the microsoft excel  

file shows that the face value of the bond is  1000 and its price is quoted at 103 percent  

its life is 23 years coupon rate is 6 percent  and the coupon amount will be equal to coupon  

rate into face value that is 60 payment frequency  is two times semi-annual payments tax rate is 21  

percent pretext cost of that and after tax cost  of that is unknown we have to find these values  

firstly we will calculate the price of the bond  that is equal to 103 percent of the face value  

to find this value simply multiply face value and  14 price that was 103 percent so the bond current  

price is 1 0 30. n is 23 years and the payment  is made twice a year so we will multiply by this  

by 2 to get the number of payments that will  be 46 coupon payment or coupon amount is 60  

but this amount will be paid in two installments  so that's why we will divide this by two to get  

the exact amount that is 30. to find the cost of  that we will calculate the yield to maturity of  

the bond and the yield to maturity of the bond  can be calculated by using this formula here c  

is for cash flows plus fv is the future value pv  is the present value n is the number of payments  

to find the yield to maturity i will write here  equal to bracket start open amount plus face value  

minus present value divided by 46 divided by  face value plus present value divided by 2  

and enter so the answer is 2.89 percent as we know  that the payments are made on semi-annual basis  

so we will multiply this answer by two so the  answer will be zero point two eight nine percent  

into two that is five point five point seven eight  percent that is the pre-tax cost of that to find  

the after tax cost of debt equal to into 1 minus  t that is tax rate and the after tax cost is  

equal to 4.5 percent if you need help in any  finance questions you can contact us we will  

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