To calculate the individual cost of bonds in the cost of capital follow this steps:
The interest paid is the coupon rate times the face value for example 11.7% and 1,000 FV
Assuming a market price of $1, 120 and a maturity in 10 years, enter the following values in the financial calculator: Interest rate 34%
PV = 1,120
PMT = ?
FV = 1,000
N = 10
Obtain I =
This is the yield before taxes.
To obtain the after tax cost multiply the before tax cost, times one minus the tax rate.
Example. If the tax rate is 34% the after tax cost will be:
? x (1 - 0.34) =? x ? = ?
The interest paid is the coupon rate times the face value for example 11.7% and 1,000 FV
Assuming a market price of $1, 120 and a maturity in 10 years, enter the following values in the financial calculator: Interest rate 34%
PV = 1,120
PMT = ?
FV = 1,000
N = 10
Obtain I =
This is the yield before taxes.
To obtain the after tax cost multiply the before tax cost, times one minus the tax rate.
Example. If the tax rate is 34% the after tax cost will be:
? x (1 - 0.34) =? x ? = ?
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