Olympic Sports has two issues of debt outstanding

Olympic Sports has two issues of debt outstanding. One is an 8% coupon bond with a face value of $36 million, a maturity of 15 years, and a yield to maturity of 9%. The coupons are paid annually. The other bond issue has a maturity of 20 years, with coupons also paid annually, and a coupon rate of 9%. The face value of the issue is $41 million, and the issue sells for 95% 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 = ______ %

Here’s the SOLUTION

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