Find the after-tax costs of debt capital

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Reference no: EM132019624

Suppose today is January 1, 2009. On January 1, 1999, MAM Industries issued a 30-year bond with a 9% coupon and a $1,000 face value, payable on January 1, 2029. The bond now sells for $915. Suppose MAM Industries also issued a 30-year bond five years ago - it has a $1,000 face value and a 10% coupon.

1. If the bond currently sells for $1,000, what is the after-tax costs of debt capital, as indicated by the market value of this outstanding bond?

2. Suppose five years from now the MAM bond described in question 1 has a market price of $1,100. What is the after-tax cost of debt capital at that time?

Reference no: EM132019624

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