The cost of debt 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 each case, the

bonds will have a $1,000 par value and flotation costs will be $30 per bond. The

company is taxed at a rate of 40%. Calculate the after-tax cost of financing with

each of the following alternatives.

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