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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?

Settlement01/01/2000
Maturity01/01/2018
Price (% of par)95  
Coupon rate8%
Payments per year2  
Tax rate35%
Pretax cost8.55%

5.56%

11.54%

6.33%

13.15%

Answer & Explanation Solved by verified expert
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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Transcribed Image Text

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%

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