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2. subtracted/added Answer all questions or i will downvote. The cost of debt that is relevant when companies are evaluating new investment projects is the
2. subtracted/added
Answer all questions or i will downvote.
The cost of debt that is relevant when companies are evaluating new investment projects is the marginal cost of the new debt that is to be raised to finance the new project. ate. It usually The required retum (or cost) of previously-issued debt is often referred to as the differs from the cost of newly raised financial capital. projected forecasted marginal embedded Consider the case of Cold Duck Brewing Company: Cold Duck Brewing Company is considering issuing a new thirty-year debtissue that would pay an annual coupon payment of $80. Each bond in the issue would carry a $1,0DD par value and would be expected to be sold for a market price equal to its par value. Cold Duck's CFO has pointed out that the firm will incur a flotation cost of 3% when initially issuing the bond issue. Remember, these flotation costs will be bonds. The firm's marginal federal-plus-state tax rate is 35%. from the proceeds the firm will receive after issuing its new To see the effect of fotation costs on Cold Duck's after-tax cost of debt, calculate the before-tax and after-tax costs of the firm's debt issue with and without its flotation costs, and insert the corredt costs into the boxes. Before-tax cost of debt without lotation cost: After-tax cost of debt without lotation cost: Before-tax cost of debt with lotation cost After-tax cost of debt with fotation costStep by Step Solution
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