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Netflix Inc wants to issue discount bonds with a market value equal to 45% of their face value. The income tax rate of Netflix is 30%. The bonds will carry 3.5% coupon, paying interest semi annually, and they will mature after 10 years.
(A) Calculate the approximate yield-to-maturity of the bonds, and then the after-tax cost of debt for Netflix.
Answer: 8.69%
(B) Using the concept of original issue discount, write an equation that would give the after-tax cost of debt for Netflix. Solve this equation by using Maple, WolframAlpha, or Excel.
Answer: 9.675%
Assume the same facts as in 1A above, except that the interest payment checks were placed on the shareholders' office on December 31, 2012. However, the shareholders are not in the
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