Compute the yield to maturity on the old issue and use this as the yield for the new issue.
Describe how and why information systems are used today.
August 5, 2017Describe the capital expenditures of each firm and the factors that impacted the companies’ debt capacities and capital structures.
August 5, 2017Compute the yield to maturity on the old issue and use this as the yield for the new issue.
Problem 9
Airborne Airlines Inc. has a $1,000 par value bond outstanding with 25 years to maturity. The bond carries an annual interest payment of $88 and is cur- rently selling for $950. Airborne is in a 40 percent tax bracket. The firm wishes to know what the aftertax cost of a new bond issue is likely to be. The yield to maturity on the new issue will be the same as the yield to maturity on the old issue because the risk and maturity date will be similar.
- Compute the yield to maturity on the old issue and use this as the yield for the new issue.
- Make the appropriate tax adjustment to determine the aftertax cost of debt
