Question

Olympic Sports has two issues of debt outstanding. One is a 6% coupon bond with a face value of $35 million, a maturity of 10 years, and a yield to maturity of 7%. The coupons are paid annually. The other bond issue has a maturity of 15 years, with coupons also paid annually, and a coupon rate of 7%. The face value of the issue is $40 million, and the issue sells for 94% of par value. The firm's tax rate is 40%.

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
%

Answer 1

345
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