Question
Gronseth Drywall Systems, Inc., is in discussions with its investment bankers regarding the issuance of new bonds. The investment banker has informed the firm that
Gronseth Drywall Systems, Inc., is in discussions with its investment bankers regarding the issuance of new bonds. The investment banker has informed the firm that different maturities will carry different coupon rates and sell at different prices. The firm must choose among several alternatives. In eachcase, the bonds will have a $1,000 par value and flotation costs will be $30 per bond. The company is taxed 30%. Use the approximation formula to calculate the after-tax cost of financing with the following alternative.
| Coupon rate | Time to maturity | Premium or discount |
6% 13 years $150
The after-tax cost of financing using the approximation formula is what percent?
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Financial Institutions Management A Risk Management Approach
Authors: Marcia Cornett, Patricia McGraw, Anthony Saunders
8th edition
978-0078034800, 78034809, 978-0071051590
