Contrail Air, Inc is trying to determine its cost of debt. The company has an outstanding...

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Finance

Contrail Air, Inc is trying to determine its cost of debt. Thecompany has an outstanding debt issue with 18 years to maturitythat is quoted at 95.00% percent of face value. The issue makessemiannual payments and has a coupon rate of 8.00% percent. What isthe after tax cost of debt?
Settlement 01/01/2000
Maturity 01/01/2018
Price (% of par) 95
Coupon rate 8%
Payments per year 2
Tax rate 35%
Pretax cost 8.55%
5.56%
11.54%
6.33%
13.15%

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3.9 Ratings (687 Votes)

Information provided Face value future value 1000 Time 18 years2 36 semiannual periods Present value 951000 950 Coupon rate 82 See Answer

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Contrail Air, Inc is trying to determine its cost of debt. Thecompany has an outstanding debt issue with 18 years to maturitythat is quoted at 95.00% percent of face value. The issue makessemiannual payments and has a coupon rate of 8.00% percent. What isthe after tax cost of debt?Settlement01/01/2000Maturity01/01/2018Price (% of par)95 Coupon rate8%Payments per year2 Tax rate35%Pretax cost8.55%5.56%11.54%6.33%13.15%

Settlement	01/01/2000
Maturity	01/01/2018
Price (% of par)	95
Coupon rate	8%
Payments per year	2
Tax rate	35%
Pretax cost	8.55%