Description
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
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Explanation & Answer
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Cost of debt=Rate(21,89.1,-988,1000)= 9.04%
After tax cost= 9.04%(1-.40)= 9.04*.6=5.42%
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