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- The Walt Disnay Company would also like to calculate its cost of debt. It has an issue of bonds outstanding with a coupon rate of 7%, 11 years to maturity, a face value of $1,000, and it makes annual coupon payments. The bonds are currently priced at 98 percent of face value. The corporate tax rate is 34%.
- Would you expect the cost of debt to be lower or higher than the cost of equity? Explain why (2-3 sentences).
- Calculate the before-tax cost of debt. Express your answers in percentage form with two decimal places – 0.00%.
- Calculate the after-tax cost of debt. Express your answers in percentage form with two decimal places – 0.00%.
- Why do we deduct taxes when calculating cost of debt? (1-2 sentences)
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