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The Cost of Debt and Flotation Costs Suppose a company will issue new 20-year debt with a par value of $1,000 and a coupon rate
The Cost of Debt and Flotation Costs
Suppose a company will issue new 20-year debt with a par value of $1,000 and a coupon rate of 9%, paid annually. The issue price will be $1,000.
a) The tax rate is 25%. If the flotation cost is 2% of the issue proceeds, then what is the after-tax cost of debt?
b) What if the flotation costs were 10% of the bond issue?
I am having a difficulting with the calculation process i am not getting the correct answer which are 6.91 % and 7.64%
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