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 rate for similar bonds are just under 12%, Warren can sell its bonds for $1,050 each; Warren will incur flotation costs of $30 per bond. The firm is in the 24% 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. ... a. The net proceeds from the sale of the bond, Nd, is $ 1020. (Round to the nearest dollar.) b. The before-tax cost of debt is %. (Round to two decimal places.)
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 rate for similar bonds are just under 12%, Warren can sell its bonds for $1,050 each; Warren will incur flotation costs of $30 per bond. The firm is in the 24% 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. ... a. The net proceeds from the sale of the bond, Nd, is $ 1020. (Round to the nearest dollar.) b. The before-tax cost of debt is %. (Round to two decimal places.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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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 $1,050 each; Warren will incur flotation costs of $30 per bond. The firm is in the 24% 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.
a. The net proceeds from the sale of the bond, Nd, is $ 1020. (Round to the nearest dollar.)
b. The before-tax cost of debt is%. (Round to two decimal places.)
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