Answered

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Venus Inc. has a $1, 000 par value bond outstanding with 7 years to maturity. The bond carries an annual interest payment of $70, payable semiannual, and is currently selling for $810 . Octopus is in a 38 percent tax bracket. The firm wishes to know what the aftertax cost of a new bond issue is likely to be. The yleld to maturity on the new issue will be the same as the yield to maturity on the old issue because the risk and maturity date will be similar:
Compute the yield to maturity on the old issue and use this as the yield for the new issue.

Sagot :

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