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KatyDid Clothes has a $160 million (face value) 20-year bond issue selling for 101 percent of par that carries a coupon rate of 12 percent, paid semiannually. What would be KatyDid's before-tax component cost of debt? (Round your answer to 2 decimal places.)

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akindeleot

Answer:

11.87% pre tax cost of debt

Explanation:

Coupon Rate = 12.00%

Years to Maturity = 20.0

NPER = 40 (years of maturity x 2)

PMT = $60.00 (Face value x coupon rate) / 2

Face Value = $1,000.00

Price = PV = $1,010.00

Rate = 5.93%

          rate(nper,pmt,-pv,fv)

          rate(40,60,-1010,1000)

Yield = Rate x 2 = 11.87% pre tax cost of debt

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