37、Oxford Enterprises Incorporated is determining the cost of debt to use in its weighted average cost of capital. It has recently issued a 10-year, 6 percent semi-annual coupon bond for $864. The bond has a maturity value of $1,000. If the marginal tax rate is 35 percent, the cost of debt they should use in their calculation is closest to:

A. 2.6%.

B. 3.9%.

C. 5.2%.

D. 6.0%.

[此贴子已经被作者于2008-11-7 15:55:13编辑过]

Correct answer = C

"Cost of Capital," Yves Courtois, Gene C. Lai, and Pamela P. Peterson
2008 Modular Level I, Vol. 4, pp. 45-46
Study Session 11-45-b, f
describe how taxes affect the cost of capital from different capital sources;
calculate and interpret the cost of fixed-rate debt capital using the yield-to-maturity approach and the debt-rating approach
The cost of debt to be used in the weighted average cost of capital (WACC) would be the yield-to-maturity after tax. Coupon payment = 0.06 / 2 x 1,000 = 30. To obtain the pre-tax yield to maturity, solve the following equation for i:

i = 4% per period, or 8% per year. After-tax cost of debt = 8 x (1 - 0.35) = 5.2%
FV = 1,000; PV = -864; PMT = 30; N = 20. Compute I / Y. I / Y = 4% semi-annual.
Annual = 4 x 2 = 8%. After-tax cost of debt = 8 x (1 - 0.35) = 5.2% 

[此贴子已经被作者于2008-5-19 14:04:08编辑过]

谢谢哦！