Sign up  |  Log in

Corporate Finance Practice Problem

Hi All,

I’m currently busy with the preparations of the exam for Level 1.

There seems to be a practice problem I can’t understand. It is the practice problem nr 4 of Reading 35 - Cost of Capital.

I can’t figure out how to use the calculator for this. I keep receiving the Error 5 or Error 7 when using the BA 2 Plus Texas Instruments.

Would there be someone that can help me out here?

Thanks.

"Using Wiley for my CFA journey was by far the best option… I was able to pass on my first attempt.”– Moe E., Canada

I don’t have L1 materials, but you can show me how you keyed in the numbers. 

“Mmmmmm, something…” - H. Simpson

The question is as follows;

Company X has determined that it could issue $1000,- face value of bonds with an 8 % coupon paid semi annually and a five year maturity at $900 per bond. The marginal tax rate of the company is 38%. What is its after tax cost of debt?

So in my calculator (which is set on END)I do the following
FV 1000
PMT 40
N 10
PV 900
CPT I/Y

I get then the error 5

If I do the same as above, however with -40 PMT I get the error 7.

So not sure what I am doing wrong here.

Thanks.

Set PV as negative. PV is the outflow and PMT and FV are inflows. You’ll get a value then.

Bachelors of Business Administration (BBA), Masters of Business Administration (MBA)
"People grow through experience if they meet life honestly and courageously. This is how character is built." Eleanor Roosevelt

Yes that did the trick.

Thanks for the help!