Oberon, Inc., has a $15 million (face value) 10-year bond issue selling for 99 percent of par that pays an annual coupon of 8.35 percent. What would be Oberon’s before-tax component cost of debt? (Round your answer to 2 decimal places.)

The before-tax component cost of debt is 8.489%.

Explanation:

We apply the formula for yield to maturity (YTM) to solve this problem.

YTM = [C + (F-P)/n] / [(F+P)/2] where

C = Coupon payment

F = Face value of bond

P = Present value of bond (or current selling price)

n = Years to maturity

The given values are:

F = $15,000,000

P = 0.99 x $15,000,000 = $14,850,000

C = 0.0835 x $15,000,000 = $1,252,000

n = 10

Applying these values in the above formula,

YTM = [1,252,000 + (15,000,000 - 14,850,000)/10]

           / [(15,000,000 + 14,850,000)/2]

YTM = 1,267,000 / 14,925,000

YTM = 0.08489

YTM = 8.489%

The answer is 8.49%

Explanation:

Using the formula

YTM = C + ( F + P) / n / (F + P ) / 2

Where C= annual coupon amount

F = Face value of the bond

P = Current bond price

n = Total number of years till maturity

F = 15,000,000

P = 0.99 × 15,000,000 = 14,850,000

C = 0.835 × 15,000,000 = 1,252,500

n = 10

Putting the value into the above formula we have

1,252,500 + ( 15,000,000 - 14,850,000) / 10 / (15,000,000 + 14,850,000) / 2

= 1,267,500/ 14,925,000

= 0.0849 × 100

= 8.49%

Therefore before tax component cost of debt is 8.49%

hi : ) i found this so i hope this !

"we first find value of tax in dollars.

the difference between the two prices   is: 23. 54 - 22 = 1.54

therefore the sales tax in dollars is 1.54

the tax % will be   (amount of tax / original cost price ) × 100

(1.54 / 22) × 100  → (0.07) × 100 =   7

so the tax rate is 7%

we can double check the answer.

7 % of 22   → (7/100) × 22 → 0.07 × 22 = 1.54

22 + 1.54 = 23.54"

answer(c) factors of production;