Question 31

Mr Price is interested in measuring its overall cost of capital. Current investigation has gathered the following data. Firm is in 40% tax bracket. Debt information: The firm can raise an unlimited amount of debt by selling R1,200 par value, 8% coupon interest rate, 20 year bonds on which annual interest payments will be made. To sell the issue, an average discount of R60 per bond would have to be given. The firm also must pay flotation costs of R60 per bond. Calculate the after tax cost of debt.

• A. 5,18%
• B. 5,96%
• C. 5,46%
• D. 6,32%