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What is the cost of debt use the approximate approach

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Reference no: EM132667479

The Richardson Oil Company is considering issuing additional debt. They wish to use the yield on their existing debt as a guide to the cost of new debt. They currently have a zero-coupon bond outstanding that has five years to maturity and a current market price of 7468, or $747.50 per $1,000 par value. Use the Approximate Approach

Problem a. If Richardson's marginal tax rate is 20%, what is the cost of debt?

Problem b. If Richardson's marginal tax rate is 30%, what is the cost of debt?

Reference no: EM132667479

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