Consider the case of Cold Duck Brewing Company: Cold Duck Brewing Company can issue a is-year debt security that pays an annual coupon payment of $85. The bond carries a par value of $1,000 and is currently trading at par. Based on this information, determine the after-tax cost of Cold Duck's debt if the firm's marginal federal-plus-state tax rate is 40%. Cold Duck Brewing Company's after-tax cost of debt (rounded to four decimal places) is: 4.0800%

4.8450%

5.1000%

4.5900% Cold Duck's CFO has pointed out that if these new bonds are issued, the company will incur a flotation cost of 1%. Remember, these flotation costs will be __________ (added or subtracted) from the proceeds the firm receives from the sale of its new bonds. Calculate the company's after-tax cost of debt net of the issue's flotation costs.

If Cold Duck issues its new bonds and incurs flotation costs of 1%, then its adjusted (net) after-tax cost of debt (rounded to four decimal places) will be: 5.3550%

5.1728%

6.1200%

4.8450%

This is the cost of ___________ (historical or marginal) debt, and it is different from the average cost of capital raised in the past.