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Problem 11-9 (Algo) Approximate yield to maturity and cost of debt [LO11-3] Airbome Airlines Incorporated...

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Problem 11-9 (Algo) Approximate yield to maturity and cost of debt [LO11-3] Airbome Airlines Incorporated has a $1,000 par value bond outstanding with 25 years to maturity The bond carries an annual interest payment of $98 and is currently selling for $950. Airborne is in a 20 percent tax bracket. The firm wishes to know what the aftertax cost of a new bond issue is likely to be. The yield to maturity on the new issue will be the same as the yield to maturity on the oid issue because the risk and maturity date will be similar. a. Compute the yield to maturity on the old issue and use this as the yield for the new issue Note: Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal ploces. b. Make the appropriate tax adjustment to determine the aftertax cost of debt. Note: Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places

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