Can someone explain how the book is arriving at this % underlined in yellow? Thank you.

only the w 1 (1 + kabe) 20 fe thing this method doesn't provide is an estimate of issuance costs. But issuance costs could be estimated independently, or as suggested earlier, a close estimate Consider the following example for Mayers Dazzling Resorts Incorporated, Suppose Mayers does not have any information on a current bond issuance but selling bonds, and has no bonds outstanding? Or possibly Mayers may have the out estimate for the before-tax cost on new bo of before-tax cost can still be obtained while ignoring issuance costs. ago. Currently this bond is selling for $1,280 and has 20 years remaining to matus has an outstanding 30-year bond with a 12 percent coupon rate issued 10 years rity . We can estimate the before-tax interest rate on a new bond issued by Mayers by computing the before-tax yield on this bond. 1 $1,000 $1,280 = $120 X + kabt (1 + kabt) 20 PV = Vnet = -$1,280 PMT = C = $120 N = n = 20 FV = M = $1,000 And then compute I/Y or I/YR to obtain the before-tax interest cost. I/Y = I/YR = kabt = 8.94% The estimate of after-tax interest cost on a new bond for Mayers is ka = 8.94% X (1 0.40) = 5.37% But what if Mayers has not recently sold any bonds, is not in the p. th p T V ti process of