The noncallable $1,000 par value, 20-year, 7.25% bonds with semiannual payments are selling for $875. The firm's tax rate is 40%.
What is the best estimate of the after-tax cost of debt?
To help finance a major expansion, Castro Chemical Company sold a noncallable bond several years ago that now has 20 years to maturity. This bond has a 9.25% annual coupon, paid semiannually, sells at a price of $1,075, and has a par value of $1,000. If the firm's tax rate is 40%, what is the component cost of debt for use in the WACC calculation?