Question
Sincere Stationery Corporation needs to raise $ 500 comma 000 500,000 to improve its manufacturing plant. It has decided to issue a $ 1 comma
Sincere Stationery Corporation needs to raise $500 comma 000
500,000 to improve its manufacturing plant. It has decided to issue a $1 comma 000
1,000 par value bond with an annual coupon rate of 14
14 percent and a maturity of 10
10 years. The investors require a rate of return of 9
9 percent.
a. Compute the market value of the bonds.
b. What will the net price be if flotation costs are 10.5
10.5 percent of the marketprice?
c. How many bonds will the firm have to issue to receive the neededfunds?
d. What is thefirm's after-tax cost of debt if its average tax rate is 25 percent and its marginal tax rate is 34
34 percent?
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