a bond that has a $1000 par value (face value) and a contract or coupon interest rate of 10.9%. The bonds have a current value of $1,120 and will mature in 10 years. The firm's marginal tax rate is 34%. The cost of capital from this bond debt is what percent? round to two decimal places.
Your school subject is NOT UOP.
To calculate the cost of capital from the bond debt, you need to consider both the coupon interest rate and the tax rate.
The formula for the cost of debt is as follows:
Cost of Debt = (Coupon Interest Rate * (1 - Tax Rate))
Let's plug in the given values:
Coupon Interest Rate = 10.9%
Tax Rate = 34%
Cost of Debt = (10.9% * (1 - 34%))
First, let's calculate (1 - 34%):
(1 - 34%) = 0.66
Now, plug this value back into the formula:
Cost of Debt = 10.9% * 0.66
Now, calculate the Cost of Debt:
Cost of Debt = 7.194%
Therefore, the cost of capital from this bond debt is 7.194% (rounded to two decimal places).