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Estimate of the after-tax cost of debt

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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?

Reference no: EM131038495

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