$($Cost of debt$)$ Sincere Stationery Corporation needs to raise $$$$500$ comma $000$ to improve its manufacturing plant. It has decided to issue a $$$$1$ comma $000$ par value bond with an annual coupon rate of $14$ percent and a maturity of $10$ years. The investors require a rate of return of $9$ percent.

a$.$ Compute the market value of the bonds.

b$.$ What will the net price be if flotation costs are $10\mathrm{.}5$ percent of the market$$ price?

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

d$.$ What is the$$ firm's after$-$tax cost of debt if its average tax rate is $25$ percent and its marginal tax rate is $21$percent$?$

e$.$ Rework the problem as$$ follows: Assume a coupon rate of $8$ percent.$$

f$.$ What effect does changing the coupon rate have on the$$ firm's after$-$tax cost of$$ capital? Why is there a$$ change?

Question content area bottom

Part $1$

a$.$ If the$$ bond's annual coupon rate is $14\%,$ what is the market value of the$$ bond?

$$$

$$

enter your response here$($Round to the nearest$$ cent.$)$

Part $2$

b$.$ What will the net price be if flotation costs are $10\mathrm{.}5$ percent of the market$$ price?

$$$

$$

enter your response here$($Round to the nearest$$ cent.$)$

Part $3$

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

$$

enter your response here bonds$($Round to the nearest whole$$ number.$)$

Part $4$

d$.$ What is the$$ firm's after$-$tax cost of debt if its marginal tax rate is $21$percent$?$

$$

enter your response here$\%($Round to two decimal$$ places.$)$

Part $5$

e$.$ If the$$ bond's annual coupon rate is $8\%,$ what is the market value of the$$ bond?

$$$

$$

enter your response here$($Round to the nearest$$ cent.$)$

Part $6$

What will the net price be if flotation costs are $10\mathrm{.}5$ percent of the market$$ price?

$$$

$$

enter your response here$($Round to the nearest$$ cent.$)$

Part $7$

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

$$

enter your response here bonds$($Round to the nearest whole$$ number.$)$

Part $8$

What is the$$ firm's after$-$tax cost of debt if its marginal tax rate is $21$percent$?$

$$

enter your response here$\%($Round to two decimal$$ places.$)$

Part $9$

c$.$ 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 increases the bond price and increases the flotation cost. As a$$ result, the$$ after$-$tax cost of debt is slightly raised.

B$.$

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.

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 but lowers the flotation cost. As a$$ result, the$$ after$-$tax cost of debt is slightly reduced.

$$($Round to the nearest cent.$)$$$($Round to the nearest cent.$)$How many bonds will the firm have to issue to receive the needed funds?$($Round to the nearest whole number.$)$What is the firm's after$-$tax cost of debt if its marginal tax rate is $21$ percent?$($Round to two decimal places.$)$$$($Round to the nearest cent.$)$$$($Round to the nearest cent.$)$How many bonds will the firm have to issue to receive the needed funds?$($Round to the nearest whole number.$)$What is the firm's after$-$tax cost of debt if its marginal tax rate is $21$ percent?$($Round to two decimal places.$))$