Question
Currently, Warren Industries can sell 15-year, $1,000-par-value bonds paying annual interest at a 8% coupon rate. Because current market rates for similar bonds are just
Currently, Warren Industries can sell 15-year, $1,000-par-value bonds paying annual interest at a 8%
coupon rate. Because current market rates for similar bonds are just under 8%, Warren can sell its bonds for
$1,100 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.
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