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Jimstan & Jimstan Corp. can sell a new 10-year bond with an annual coupon of 5.5% and a face value of $1,000 for $1,206.33. The
Jimstan & Jimstan Corp. can sell a new 10-year bond with an annual coupon of 5.5% and a face value of $1,000 for $1,206.33. The company will incur flotation costs of $40 per bond and has a tax rate of 27%.
Part 1
What are the net proceeds from selling the bond?
Nd=PF=1,206.3340=Nd=P-F=1,206.33-40= 1,166.33 Correct
Part 2
What is the company's pre-tax cost of debt?
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