$5million of debt outstanding,coupon rate of12%,yield to maturity 14%,tax rate is40%,what is the cost of debt?

Answer 1

this question does not make sense the way it is written.
The coupon rate is the interest one would receive on the bond the day they bought this bond since bonds are usually sold in 1000 some one would receive 120 interest on this bond per year this is still how much interest will be paid on this bond. I

f the yield to maturity is 14 percent that means that the price of this bond has went down in market price to create a higher yield than the origional coupon rate. the yield to maturity is what the average annual yield will be if the bond is held till the company buys it back

And tax rate of 40% means that any income this person would make would be taxed at 40% so for every 100 dollars this person would make 40 of it would go to taxes

but the actual cost of the debt would be the 12% interest paid over the life of the debt

Answer 2

The cost of debt is the yield (14%). The after tax cost of debt is the yield times (1-t) -- where t is the tax rate. So -- the after tax cost of debt is 14%*(0.6) = 8.4%

Note that the amount of debt and the coupon rate have nothing to do with it. Someone looking at this question might think you want the dollar value of the debt. You would need more information to answer that question (like the time to maturity of the debt).