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Currently, Warren Industries can sell 20-year , $1,000 -par-value bonds paying annual interest at a 11 % coupon rate. Because current market rates for similar
Currently, Warren Industries can sell 20-year , $1,000 -par-value bonds paying annual interest at a 11 % coupon rate. Because current market rates for similar bonds are just under 11 %, Warren can sell its bonds for $1,070 each; Warren will incur flotation costs of $35 per bond. The firm is in the 27 % tax bracket.
Calculate the bond's yield to maturity (YTM ) to estimate the before-tax and after-tax costs of debt.
Use the approximation formula to estimate the before-tax and after-tax costs of debt.
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