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    Cost of Debt Yield To Maturity X (1 - Tax Rate) Cost of Debt 12% X (1 - 0.35) Cost of Debt 7.80%

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    Drey Martinez
    The Heuser Company currently has outstanding bonds with a 10% coupon and 12% yield to maturity. If it issued new bonds at par that provided a similar 12% yield, its after-tax cost of debt would be 7.8% given its 35% marginal tax rate. This is calculated by taking the yield to maturity and multiplying it by 1 minus the tax rate. Tunney Industries can issue perpetual preferred stock at $47.50 per share. The document provides the formula to calculate the after-tax cost of debt but does not show the calculation for the cost of preferred stock.

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    Cost of Debt Yield To Maturity X (1 - Tax Rate) Cost of Debt 12% X (1 - 0.35) Cost of Debt 7.80%

    Uploaded by

    Drey Martinez
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    The Heuser Company currently has outstanding bonds with a 10% coupon and 12% yield to maturity. If it issued new bonds at par that provided a similar 12% yield, its after-tax cost of debt would be 7.8% given its 35% marginal tax rate. This is calculated by taking the yield to maturity and multiplying it by 1 minus the tax rate. Tunney Industries can issue perpetual preferred stock at $47.50 per share. The document provides the formula to calculate the after-tax cost of debt but does not show the calculation for the cost of preferred stock.

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    The Heuser Company currently has outstanding bonds with a 10% coupon and 12% yield to maturity. If it issued new bonds at par that provided a similar 12% yield, its after-tax cost of debt would be 7.8% given its 35% marginal tax rate. This is calculated by taking the yield to maturity and multiplying it by 1 minus the tax rate. Tunney Industries can issue perpetual preferred stock at $47.50 per share. The document provides the formula to calculate the after-tax cost of debt but does not show the calculation for the cost of preferred stock.

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    5 views1 page

    Cost of Debt Yield To Maturity X (1 - Tax Rate) Cost of Debt 12% X (1 - 0.35) Cost of Debt 7.80%

    Uploaded by

    Drey Martinez
    The Heuser Company currently has outstanding bonds with a 10% coupon and 12% yield to maturity. If it issued new bonds at par that provided a similar 12% yield, its after-tax cost of debt would be 7.8% given its 35% marginal tax rate. This is calculated by taking the yield to maturity and multiplying it by 1 minus the tax rate. Tunney Industries can issue perpetual preferred stock at $47.50 per share. The document provides the formula to calculate the after-tax cost of debt but does not show the calculation for the cost of preferred stock.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
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    1 AFTER-TAX COST OF DEBT The Heuser Company’s currently outstanding bonds have a

    10% coupon and a 12% yield to maturity. Heuser believes it could issue new bonds at par

    that would provide a similar yield to maturity. If its marginal tax rate is 35%, what is

    Heuser’s after-tax cost of debt?


    Cost of Debt = Yield to Maturity x (1 - tax rate)
    Cost of Debt = 12% x (1 - 0.35)
    Cost of Debt = 7.80%

    10-2 COST OF PREFERRED STOCK Tunney Industries can issue perpetual preferred stock at a

    price of $47.50 a share. The stock would

    cost pf capital

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