After tax cost of debt finance problem

Business & Finance
Tutor: None Selected Time limit: 1 Day

Great Seneca Inc. sells $100 million worth of 21-year to maturity 8.91% annual coupon bonds. The net proceeds (proceeds after flotation costs) are $988 for each $1,000 bond. The firm's marginal tax rate is 40%. What is the after-tax cost of capital for this debt financing?

Round the answer to two decimal places in percentage form.

Can't seem to get this one on excel. Could you please help me. Thank you

Sep 28th, 2015

Thank you for the opportunity to help you with your question!

Cost of debt=Rate(21,89.1,-988,1000)= 9.04%

After tax cost= 9.04%(1-.40)= 9.04*.6=5.42%

Please let me know if you need any clarification. I'm always happy to answer your questions.
Sep 28th, 2015

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