The effective annual after-tax cost of debt capital

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Bristol Myers Squibb, an international pharmaceutical company, is initiating a new project for which it requires $2.5 million in debt capital. The current plan is to sell 20-year bonds that pay 4.2% per year, payable quarterly, at a 3% discount on the face value. BMS has an effective tax rate of 35% per year. Determine (a) the total face value of the bonds required to obtain $2.5 million and (b) the effective annual after-tax cost of debt capital.

Reference no: EM13956184

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