Question
Cost of debt using both methods (YTM and the approximation formula) Currently, Warren Industries can sell 20-year, 1,000-par-value bonds paying annual interest at a 13%
Cost of debt using both methods (YTM and the approximation formula)Currently, Warren Industries can sell
20-year, 1,000-par-value bonds paying annual interest at a 13% coupon rate. Because current market rates for similar bonds are just under 13%, Warren can sell its bonds for $960 each; Warren will incur flotation costs of $20 per bond. The firm is in the 21% tax bracket.
a.Find the net proceeds from the sale of the bond, Nd
b.Calculate the bond's yield to maturity (YTM to estimate the before-tax and after-tax costs of debt.
c.Use the approximation formula to estimate the before-tax and after-tax costs of debt.
QUESTIONS----
A. The net proceeds from the sale of the bond, Nd is $ ___
b. using the bond's YTM, the before-tax cost of debt is ___ %
using the bonds's YTM, the after-tax of debt is __ %
c.using the approximation formula, the before tax cost of debt is ___ %
using the approximation formula, the after-tax cost of debt is ___%
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