Cost of debt using both methods Currently, Warren Industries can sell 15-year, $1,000-par-value bonds paying annual interest at a 12% coupon rate. As a result of current interest rates, the bonds can be sold for $1,010 each; flotation costs of $30 per bond will be incurred in this process. The firm is in the 40% tax bracket.

A. Find the net proceeds from sale of the bond, N_d.

B. Show the cash flows from the firms point of view over the maturity of the bond.

C. Calculate the before-tax and after-tax costs of debt.

D. Use the approximation formula to estimate the before-tax and after-tax costs of debt.