Oberon Inc has a 25 million face value 8year bond issue sell

Oberon, Inc., has a $25 million (face value) 8-year bond issue selling for 94 percent of par that pays an annual coupon of 8.25 percent. What would be Oberon\'s before-tax component cost of debt? (Round your answer to 2 decimal places.) Cost of debt

Solution

Cost of debt = (C + ((F-P)/n)) / ((F+P)/2)

   C = $25*8.25% = 2.0625, P = $25*94% = $23.5

          =  ($2.0625 + (($25-$23.5)/8)) / (($25+$23.5)/2)   

                          = 9.27%