Severalyears ago, the ABC Company sold a $1,000 par value bond that now has 15 yearsto maturity and a 6.50% annual coupon that is paid semiannually. The bondcurrently sells for $980 and the company’s tax rate is 35%. What is theafter-tax cost of debt?
Debenture Valuation
A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as the ‘coupon rate.’ Debentures are documented in an indenture, clearly specifying the type of debenture, the rate and method of interest computation, and maturity date.
Note Valuation
It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:
Several
years ago, the ABC Company sold a $1,000 par
to maturity and a 6.50% annual coupon that is paid semiannually. The bond
currently sells for $980 and the company’s tax rate is 35%. What is the
after-tax cost of debt?
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