Question
Currently, Warren Industries can sell 15-year, $1,000-par-value bonds paying annual interest at a 15% coupon rate. As a result of current interest rates, the bonds
Currently, Warren Industries can sell 15-year, $1,000-par-value bonds paying annual interest at a 15% coupon rate. As a result of current interest rates, the bonds can be sold for
$1,060 each before incurring flotation costs of $35 per bond. The firm is in the 30% tax bracket.
a.Find the net proceeds from the sale of the bond,Nd.
b.Calculate the bond's yield to maturity (YTM) and 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.
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Valuation Workbook Step By Step Exercises And Tests To Help You Master Valuation
Authors: McKinsey & Company Inc.
7th Edition
1119611814, 978-1119611813
