Flotation costs and the cost of debt In March of 2020 PepsiCo, Inc. (PEP) sold $750 million worth of 25-year 5.25% coupon bonds that pay semi-annual interest. At the time the bonds were issued, the market paid $1,007.13 per bond and the flotation cost was $19.41 per bond. Pepsi's corporate tax rate is 21%. a. Ignoring flotation costs, what is Pepsi's before-tax and after-tax costs of debt? b. Considering flotation costs, what is Pepsi's before-tax and after-tax costs of debt?
Flotation costs and the cost of debt In March of 2020 PepsiCo, Inc. (PEP) sold $750 million worth of 25-year 5.25% coupon bonds that pay semi-annual interest. At the time the bonds were issued, the market paid $1,007.13 per bond and the flotation cost was $19.41 per bond. Pepsi's corporate tax rate is 21%. a. Ignoring flotation costs, what is Pepsi's before-tax and after-tax costs of debt? b. Considering flotation costs, what is Pepsi's before-tax and after-tax costs of debt?
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
Problem 1PS
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Transcribed Image Text:Flotation costs and the cost of debt In March
of 2020 PepsiCo, Inc. (PEP) sold $750 million
worth of 25-year 5.25% coupon bonds that
pay semi-annual interest. At the time the bonds
were issued, the market paid $1,007.13 per bond
and the flotation cost was $19.41 per
bond. Pepsi's corporate tax rate is 21%.
a. Ignoring flotation costs, what is Pepsi's
before-tax and after-tax costs of debt?
b. Considering flotation costs, what is Pepsi's
before-tax and after-tax costs of debt?
a. Ignoring flotation cost, Pepsi's before-tax cost
of debt is%. (Round to two decimal places.)
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