Question
( Cost of debt ) Sincere Stationery Corporation needs to raise $500,000 to improve its manufacturing plant. It has decided to issue a $1,000 par
(Cost
of
debt)
Sincere Stationery Corporation needs to raise
$500,000
to improve its manufacturing plant. It has decided to issue a
$1,000
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.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
10.5
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 lowers the bond price but increases the flotation cost. As a result, the after-tax cost of debt is slightly raised.
B.
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.
C.
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.
D.
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.
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