Question

A company has several 10-year, $1,000 face value bonds outstanding that have a coupon rate of 8%. The bonds are currently priced at par. Given this information, the company’s before-tax cost of debt

Answer 1

The before-tax cost of debt for the company is 8%.

The before-tax cost of debt can be calculated using the yield to maturity on the bond. The yield to maturity is the total return on the bond, which includes both interest payments and any capital gains or losses. In this case, since the bond is currently priced at par, the yield to maturity is equal to the coupon rate, which is 8%. This means that the company's before-tax cost of debt is 8%.