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ABC Company also determines that they can privately place a $1,000 face value bond that has a 30 year maturity. The bonds would car an
ABC Company also determines that they can privately place a $1,000 face value bond that has a 30 year maturity. The bonds would car an 8.75% interest coupon rate paid annually. Investors would purchase this investment at 1, 050 dollars. Since the issue is privately placed, there would be no flotation costs. Further! ABC Company has won a tax lottery and is not required to pay any corporate income taxes and therefore determines that it is not eligible to take the tax deduction for interest on its bonds, even though they are in the 35% marginal tax bracket. What is the required rate of return at which the investor is willing to purchase this new bond issue What is the required cost of capital to the firm for the bond issue
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