Calculate the approximate yield to maturity of the bonds, Cost Accounting

Netflix Inc wants to issue discount bonds with a market value equal to 45% of their face value. The income tax rate of Netflix is 30%. The bonds will carry 3.5% coupon, paying interest semi annually, and they will mature after 10 years.

(A) Calculate the approximate yield-to-maturity of the bonds, and then the after-tax cost of debt for Netflix.

Answer: 8.69%

(B) Using the concept of original issue discount, write an equation that would give the after-tax cost of debt for Netflix. Solve this equation by using Maple, WolframAlpha, or Excel.

Answer: 9.675%

Posted Date: 3/8/2013 4:55:15 AM | Location : United States







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