Question
Currently, Warren Industries can sell 20 dash year20-year, $1 comma 0001,000-par-value bonds paying annual interest at a 1515% coupon rate. Because current market rates for
Currently, Warren Industries can sell
20 dash year20-year,
$1 comma 0001,000-par-value
bonds paying annual interest at a
1515%
coupon rate. Because current market rates for similar bonds are just under
1515%,
Warren can sell its bonds for
$1 comma 0901,090
each; Warren will incur flotation costs of
$3535
per bond. The firm is in the
2828%
tax bracket.
a.Find the net proceeds from the sale of the bond,
Upper N Subscript dNd.
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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