20 (Cost of debt) Sincere Stationery Corporation needs to raise $550,000 to improve its manufacturing plant. It has decided to issue a $1,000 par value bond with an annual coupon rate of 17 percent and a maturity of 18 years. The investors require a rate of return of 9 percent.

a. If the bond's annual coupon rate is 17 %, what is the market value of the bond?

(Round to the nearest cent.)

b. What will the net price be if flotation costs are 14 percent of the market price?

(Round to the nearest cent.)

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

bonds(Round to the nearest whole number.)

d. What is the firm's after-tax cost of debt if its marginal tax rate is 31percent?

%

(Round to two decimal places.)

e. If the bond's annual coupon rate is 9%, what is the market value of the bond?

(Round to the nearest cent.)

What will the net price be if flotation costs are 14 percent of the market price?

(Round to the nearest cent.)

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

bonds(Round to the nearest whole number.)

What is the firm's after-tax cost of debt if its marginal tax rate is 31percent?

%

(Round to two decimal places.)

f. Which of the following statements best describes the effect of coupon rate on the firm's after-tax cost of debt?(Select the best choice below.)

A. A lower coupon rate lowers the bond price and lowers the flotation cost. As a result, the after-tax cost of debt is slightly reduced.

B. A lower coupon rate increases the bond price but lowers the flotation cost. As a result, the after-tax cost of debt is slightly reduced.

C. A lower coupon rate lowers the bond price but increases the flotation cost. As a result, the after-tax cost of debt is slightly raised.

D. A lower coupon rate increases the bond price and increases the flotation cost. As a result, the after-tax cost of debt is slightly raised.