(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.