Debt Problems

How do I figure out "Cost of Debt" Problems?

Here is the problem: Please give me an easy way to work this out and if anyone knows how to enter it in a Business Texas instrumets calculator please tell me how to do that. The Zephyr Corporation is contemplating a new investment to be financed 33% From Debt. The firm could sell new $1000 par value bonds at the net price of $945. The coupon interest rate is 12%, and the bonds would mature in 15 years. If the company is in a 34% tax bracket, what is the after-tax cost of capital to Zephyr for bonds? Please Show me how to set this up and how to do it and what #'s represent: N, I, PV, FV, and payment Thanks Financial Majors Well I played it like this: n=15*2=30 i=6.41/2= 3.205 pv= -945 fv=1000 PMT= 60 cause (1000*12%*.5=60) And the answer would then be its * .5 because we assume all Bonds are Compounded SemiAnually. So it would be 60 right? and then the answer should be 2.11 because 3.205*(1-.34) Right. Im pretty sure I figured it out

Public Comments

1. n = 15 pv = 945 pmt = -120 fv = -1000 cpt i/y = 12.84 this is ur before-tax cost of debt. after-tax cost of debt = (1-0.34) * 12.84 = 8.47%