# Calculating the after tax cost of debt

Hey everyone.

I can’t figure out how to solve example 4 of reading 36 (on Valence Industries) using my BA ii plus.

Also, how do we know that the FV is 1000 dollars? As it isn’t mentioned in the question.

Thank you.

If you are talking about bond par value (FV value calculation), I have found that is always 100 or 1000 if it is not mentioned as different in sample.

PV = -1025

FV = 1000 (this is par value of the bond at maturity)

N = 20 (10 x 2 as it’s semi-annual)

PMT = 25 (5%/2*1000 as it’s semi annual coupon payments based on the par value)

You are then required to compute I/Y which will give you the semi annual rate.

I/Y = 2.3420 per 6 months

2.3420 x 2 = 4.6840 (before tax cost of debt)

After Tax cost of Debt (Kd) = 4.6840 x (1-0.35) = 3.045 %

next time you want help, kindly post the question too. it makes it easier to answer it.

It’s not that difficult to check the questions in the book - reading number and question was provided in the initial post - not sure why people really need to make comments like this - clearly adding zero value.

Sure Salman. Thanks amzi160586

Yeah now it makes sense.

Posted questions are often removed by admins in order to avoid violating any copyright laws. Just an FYI…