Flotation costs and the cost of debt Currently, Warren Industries can sell 15-year, $1,000-par-value bonds paying annual interest at a 12% coupon rate. Because current market rates for similar bonds are just under 12%, Warren can sell its bonds for $970 each; Warren will incur flotation costs of $35 per bond. The firm is in the 28% tax bracket. a. Find the net proceeds from the sale of the bond, Nd. b. Calculate the before-tax and after-tax costs of debt.
Flotation costs and the cost of debt Currently, Warren Industries can sell 15-year, $1,000-par-value bonds paying annual interest at a 12% coupon rate. Because current market rates for similar bonds are just under 12%, Warren can sell its bonds for $970 each; Warren will incur flotation costs of $35 per bond. The firm is in the 28% tax bracket. a. Find the net proceeds from the sale of the bond, Nd. b. Calculate the before-tax and after-tax costs of debt.
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter11: Determining The Cost Of Capital
Section: Chapter Questions
Problem 2P
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URGENT PLEASE HELPPP I CANNOT FIND QUESTION B
![Flotation costs and the cost of debt Currently, Warren Industries can sell 15-year, $1,000-par-value bonds paying annual interest at a 12% coupon rate. Because current market rates for similar bonds are just under 12%, Warren can sell
its bonds for $970 each; Warren will incur flotation costs of $35 per bond. The firm is in the 28% tax bracket.
a. Find the net proceeds from the sale of the bond, Nd.
b. Calculate the before-tax and after-tax costs of debt.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F4e9914c0-135a-4395-bc83-3a11be9ef05e%2F55d58495-14e7-4eb1-a5bf-9e9a0998c072%2Fhl6lmpo_processed.png&w=3840&q=75)
Transcribed Image Text:Flotation costs and the cost of debt Currently, Warren Industries can sell 15-year, $1,000-par-value bonds paying annual interest at a 12% coupon rate. Because current market rates for similar bonds are just under 12%, Warren can sell
its bonds for $970 each; Warren will incur flotation costs of $35 per bond. The firm is in the 28% tax bracket.
a. Find the net proceeds from the sale of the bond, Nd.
b. Calculate the before-tax and after-tax costs of debt.
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