Question

Morgantown tool has 7.5 percent semiannual bonds outstanding that mature in 13 years. the current price quote is $1013 and the tax rate is 35 percent. what is the aftertax cost of debt?

Answer 1

Semi annual YTM = rate(nper,pmt,pv,fv) in excel =rate(13*2,75/2,-1013,1000) = 3.6715%

Annual YTM = 3.6715*2 =7.3431%

After tax cost of debt = 7.3431*(1-0.35) = 4.773%