Question

PackMan Corporation has semiannual bonds outstanding with nine years to maturity and the bonds are currently priced at $754.08. If the bonds have a coupon rate of 7.25 percent, then what is the after-tax cost of debt for Beckham if its marginal tax rate is 30 percent? Round your intermediate calculation to two decimal places & final percentage answer to three decimal places.

A) 7.050%
B) 8.225%
C) 11.750%
D) 12.095%

Answer 1

To calculate the after-tax cost of debt, we need to consider the coupon rate and the marginal tax rate. However, the face value of the bond is not provided in the question.

Step-by-step explanation:

To calculate the after-tax cost of debt, we need to consider the coupon rate and the marginal tax rate. The after-tax cost of debt is the interest expense on the bond after accounting for tax savings. Here's how you can calculate it:

1. Calculate the annual interest payment by multiplying the coupon rate (7.25%) by the face value of the bond (which is not given).
2. Calculate the tax savings by multiplying the annual interest payment by the marginal tax rate (30%).
3. Subtract the tax savings from the annual interest payment to get the after-tax interest expense.
4. Divide the after-tax interest expense by the bond price to calculate the after-tax cost of debt.

Since the face value of the bond is not provided in the question, we cannot complete the calculation. Please provide the face value of the bond so we can proceed with the calculation.