Question
10. Nitry Enterprises plans to raise funds for a new project by issuing new 20-year 5% coupon bonds. They believe the new issues will sell
10. Nitry Enterprises plans to raise funds for a new project by issuing new 20-year 5% coupon bonds. They believe the new issues will sell for $1,125 per bond. The new issue will incur flotation costs of $75 per bond. The corporation is in the 35% tax bracket. Assuming a par value of $1,000 and semiannual coupons, what is the after-tax cost of new debt?
(i) Describe and interpret the assumptions related to the
(ii) Apply the appropriate mathematic problem. al model to solve the
(iii) Calculate the correct solution to the problem. problem. Submit all answers as percentages and round to two decimal places.
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