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.