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Apple's 9 percent annual coupon bond has 10 years until maturity and the bonds are selling in the market for $890. The firm's tax rate is 36 percent. What is the firm's after-tax cost of debt?

Sagot :

The firm's after-tax cost of debt is 8.58%.

Information provided:

Face value= future value= $1,000

Present value= $890

Coupon rate= 9%

Coupon payment= 0.09*1,000= $90

Time= 10 years

Tax rate= 21%

The question is solved by first calculating the before-tax cost of debt which is the yield to maturity.

Enter the below in a financial calculator to compute the yield to maturity:

FV= 1,000

PV= -890

PMT= 90

N= 10

Press the CPT key and I/Y to calculate the yield to maturity.

The value obtained is 10.8566.

Therefore, the before-tax cost of debt is 10.86%.

After tax cost of debt= before tax cost of debt*(1 – tax arte)

= 10.8566%*(1 - 0.21 )

= 8.5767%    

= 8.58%

Learn more about tax here: https://brainly.com/question/25791968

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