Self-Assessment HW6E (Before and after-tax cost of debt
financing)
Question 1
Black Hill Inc. sells $100 million worth of 24-year to maturity 7.23% annual coupon bonds. The
net proceeds (proceeds after flotation costs) are $971 for each $1,000 bond. What is the before-
tax cost of capital for this debt financing?
Round the answer to two decimal places in percentage form. (Write the percentage sign in the
"units" box)
You should use Excel or financial calculator.
Your Answer:
Question 1 options:
Answer units
Hide Check my answer
For this problem we will be using Excel function RATE (Formulas – Financial – Rate)
Enter:
Nper 24
Pmt 72.30
PV -971 (must be entered as a negative number)
FV 1000
Type 0
Get the answer 7.49% (As a default, Excel shows the answer as a whole number. You have
to increase the number of decimals to get the correct answer)
=RATE(24,72.3,-971,1000,0) = 7.49%
This study source was downloaded by 100000872281541 from CourseHero.com on 09-30-2023 07:27:32 GMT -05:00
https://www.coursehero.com/file/14574276/HWK-6E-Before-after-tax-cost-of-debt-finc/
financing)
Question 1
Black Hill Inc. sells $100 million worth of 24-year to maturity 7.23% annual coupon bonds. The
net proceeds (proceeds after flotation costs) are $971 for each $1,000 bond. What is the before-
tax cost of capital for this debt financing?
Round the answer to two decimal places in percentage form. (Write the percentage sign in the
"units" box)
You should use Excel or financial calculator.
Your Answer:
Question 1 options:
Answer units
Hide Check my answer
For this problem we will be using Excel function RATE (Formulas – Financial – Rate)
Enter:
Nper 24
Pmt 72.30
PV -971 (must be entered as a negative number)
FV 1000
Type 0
Get the answer 7.49% (As a default, Excel shows the answer as a whole number. You have
to increase the number of decimals to get the correct answer)
=RATE(24,72.3,-971,1000,0) = 7.49%
This study source was downloaded by 100000872281541 from CourseHero.com on 09-30-2023 07:27:32 GMT -05:00
https://www.coursehero.com/file/14574276/HWK-6E-Before-after-tax-cost-of-debt-finc/
