Calculate the approximate yield-to-maturity of the bonds

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Reference no: EM13921120

Portland Company wants to issue discount bonds with a market value equal to 76% of their face value. The bonds will carry 5% coupon, paying interest semiannually, and they will mature after 10 years. The income tax rate of Portland is 30%.

(A) Calculate the approximate yield-to-maturity of the bonds, and then the after-tax cost of debt for Portland. Show solutions

(B) Using the concept of original issue discount, write an equation that would give the after-tax cost of debt for Portland. Solve this equation by using WolframAlpha, Maple, or Excel to find the after-tax cost of debt for Portland. Show solutions

Reference no: EM13921120

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