Cost of debt using both methods Currently, Warren Industries can sell 15-year, $1,000-par-value bonds paying annual interest at a 7% coupon rate. Because current market rates for similar bonds are just under 7%, Warren can sell its bonds for $1,010 each; Warren will incur flotation costs of $30 per bond in this process. The firm is in the 21% 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.

(E)Compare and contrast the costs of debt calculated in parts c and d. Which approach do you prefer? Why?