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 Canogola Domain Inc. Canoqola Domain Inc. is considering issuing a new 25-year debt issue that would pay an annual coupon payment of $75. Each bond in the issue will have a face value of $1,000 and is expected to be sold at par. Canogola Domain Inc.'s CFO has pointed out that the firm would incur a flotation cost of 2% when Canoqola Domain Inc.'s CFO has pointed out that the firm would incur a f tation cost of 296 when nit ally issuing the bond issue. Remember that the flotation costs will be subtracted from the amount the firm will receive from issuing its new bonds. The firm's combined marginal d subtracted te is 30%. added 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 hrlouing batese After-tax cost of debt without flotation cost: After-tax cost of debt with flotation cost