e-Midland, Inc. is issuing a $1,000 par value bond that pays 7.5 percent annual interest and matures in 15 years. Investors are willing to pay $949 for the bond and Temple faces a tax rate of 32 percent. What is Temple's after-tax cost of debt on the bond?

e-Midland, Inc. is issuing a $1,000 par value bond that pays 7.5 percent annual interest and matures in 15 years. Investors are willing to pay $949 for the bond and Temple faces a tax rate of 32 percent. What is Temple's after-tax cost of debt on the bond?

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter13: Long-term Liabilities

Section: Chapter Questions

Problem 13Q: A company issued bonds with a $100,000 face value, a 5-year term, a stated rate of 6%, and a market...

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Question

Temple-Midland, Inc. is issuing a

$1,000

par value bond that pays

7.5

percent annual interest and matures in

years. Investors are willing to pay

$949

for the bond and Temple faces a tax rate of

percent. What is Temple's after-tax cost of debt on the bond?

Question content area bottom

Part 1

The after-tax cost of debt is_____%

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