Olympic Sports has two issues of debt outstanding
Question
Olympic Sports has two issues of debt outstanding. One is a 7% coupon bond with a face value of $22 million, a
maturity of 15 years, and a yield to maturity of 8%. The coupons are paid annually. The other bond issue has a maturity of 20 years, with coupons also paid annually, and a coupon rate of 8%. The face value of the issue is $27 million, and the issue sells for 94% of par value. The firm’s tax rate is 35%.
| a. | What is the before-tax cost of debt for Olympic? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) |
| Before-tax cost of debt | % |
| b. | What is Olympic’s after-tax cost of debt? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) |
| After-tax cost of debt | % |
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