Flotation costs and the cost of debtCurrently, Warren Industries can sell

20-year,

$1,000-par-value

bonds paying annual interest at a

14%

coupon rate. Because current market rates for similar bonds are just under

14%,

Warren can sell its bonds for

$1,020

each; Warren will incur flotation costs of

$35

per bond. The firm is in the

25%

tax bracket.

a.Find the net proceeds from the sale of the bond,

Nd.

b.Calculate the before-tax and after-tax costs of debt.