Sincere Stationery Corporation needs to raise $500,000 to improve its manufacturing plant. It has decided to issue

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Sincere Stationery Corporation needs to raise $500,000 to improve its manufacturing plant. It has decided to issue a $1,000 par value bond with a 14 percent annual coupon rate and a 10-year maturity. The investors require a 9 percent rate of return.

a. Compute the market value of the bonds.

b. What will the net price be if flotation costs are 10.5 percent of the market price?

c. How many bonds will the firm have to issue to receive the needed funds?

d. What is the firm’s after-tax cost of debt if its marginal tax rate is 21 percent?

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Foundations Of Finance

ISBN: 9780135160619

10th Edition

Authors: Arthur J. Keown, John H. Martin, J. William Petty

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