Builtrite Furniture is considering sells bonds for a plant expansion. Currently, Builtrite believes that it could sell 15-year maturity, $1000 par value, 5 3/4% coupon bonds after flotation costs for $1015. If Builtrite is in the 34% marginal tax bracket, what is the after-tax cost for the bonds?

Question

Business

Tia Walters

22 June, 19:36

Builtrite Furniture is considering sells bonds for a plant expansion. Currently, Builtrite believes that it could sell 15-year maturity, $1000 par value, 5 3/4% coupon bonds after flotation costs for $1015. If Builtrite is in the 34% marginal tax bracket, what is the after-tax cost for the bonds?

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Yaritza Reeves · Answer 1

The after-tax cost for the bonds is 3.69%

Explanation:

The single formula for after-tax cost of debt for the bond is calculated using the Excel's RATE function as follows:

= rate (nper, pmt, pv, fv)

= rate (15,5.75%*1000,-1015,1000) * (1 - 0.34)

= 3.69%

Therefore, The after-tax cost for the bonds is 3.69%