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9-14: Suppose a company will issue new 10-year debt with a par value of $1,000 and a coupon rate of 7.5%, paid annually. The tax
9-14: Suppose a company will issue new 10-year debt with a par value of $1,000 and a coupon rate of 7.5%, paid annually. The tax rate is 30%. If the flotation cost is 2% of the issue proceeds, what is the after-tax cost of debt N= 10 PV = 1,000(1-0.02) = 9.80 PMT = 1000 * 7.5% = 75 -75(1-.30) = -52.50 FV=-1,000 To get I = 5.52, which is the after-tax component cost of debt. How is the FV and PV both 1,000
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