Mead Corporation is planning to issue debt that will mature in the year 2025. In many respects the issue is similar to currently outstand ing debt of the corporation. Using Table 11-2 in the chapter, a. Identify the yield to maturity on similarly outstand ing debt for the firm, in b. Assume that because the new debt will be issued at par, the required yield to maturity will be 0. 15 percent higher than the value determined in part a Add this factor to the answer in a(New issues at par sometimes require a slightly higher yield than old issues that are trading below par. There is less leverage and fewer tax advantages. c. If the firm is in a 30 percent tax bracket, what is the aftertax cost of debt? Solution: Mead Corporation a.7.51% b.7.51%+.15%=7.66% Kd= Yield(1 766%(1-30 766%(70) 5.36% CopyrightC2005 by The McGraw-Hill Companies, IncCopyright © 2005 by The McGraw-Hill Companies, Inc. S-389 11-9. Mead Corporation is planning to issue debt that will mature in the year 2025. In many respects the issue is similar to currently outstanding debt of the corporation. Using Table 11-2 in the chapter, a. Identify the yield to maturity on similarly outstanding debt for the firm, in terms of maturity. b. Assume that because the new debt will be issued at par, the required yield to maturity will be 0.15 percent higher than the value determined in part a. Add this factor to the answer in a. (New issues at par sometimes require a slightly higher yield than old issues that are trading below par. There is less leverage and fewer tax advantages.) c. If the firm is in a 30 percent tax bracket, what is the aftertax cost of debt? Solution: Mead Corporation a. 7.51% b. 7.51% + .15% = 7.66% c. Kd = Yield (1 – T) = 7.66% (1 – .30) = 7.66% (.70) = 5.36%