The cost of debt What do lenders require, and what kind of debt costs the company? The cost of debt relevant when companies are evaluating new investments is the marginal cost of new debt to be raised to finance the new project. Consider the case of Nitreca Chemicals Inc. Nitreca Chemicals Inc. is considering issuing a new 20-year debt issue that would pay an annual coupon payment of $90. Each bond in the issue would carry a $1,000 par value and would be expected to be sold for a price equal to its par value. Nitreca Chemicals Inc.'s CFO has pointed out that the firm would incur a flotation cost of 2% when initially issuing the bond issue. Remember that the flotation costs will be________________from the amount the firm will receive from issuing its new bonds. The firm's marginal federal-plus-state tax rate is 45%. To see the effect of flotation costs on the after-tax cost of debt, calculate the after-tax cost of the firm's debt issue with and without flotation costs. Then select the correct after-tax costs in the following boxes. This is the cost of_____________debt, and it is different from the average cost of capital raised in the past