Calculating Cost of Debt: A company has a debt issue on the market, a zero coupon bond with seven years left to maturity

Calculating Cost of Debt: A company has a debt issue on the market, a zero coupon bond with seven years left to maturity

 

 

answer:

Book Value of Debt = $50 million

Market Valueof Debt = $50 Million * 61% = $30.50 Million

Cost of Debt = $50 Million * (1-0.61) / 7 Years = 2.79 per year

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