An international pharmaceutical company is initiating a new project that requires $2.5 million in debt capital. The

Question:

An international pharmaceutical company is initiating a new project that requires $2.5 million in debt capital. The current plan is to sell 20 year bonds that pay 4.2% per year, payable quarterly, at a 3% discount on the face value. The company has an effective tax rate of 35% per year. Determine

(a) The total face value of the bonds required to obtain $2.5 million,

(b) The effective annual after-tax cost of debt capital using two methods factors and spreadsheet functions.

Cost Of Debt
The cost of debt is the effective interest rate a company pays on its debts. It’s the cost of debt, such as bonds and loans, among others. The cost of debt often refers to before-tax cost of debt, which is the company's cost of debt before taking... Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...

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