Business, 14.04.2020 21:58, vinp190p9zekn
Currently, Warren Industries can sell 15 dash year, $1 comma 000-par-value bonds paying annual interest at a 11% coupon rate. Because current market rates for similar bonds are just under 11%, Warren can sell its bonds for $1 comma 030 each; Warren will incur flotation costs of $30 per bond. The firm is in the 22% tax bracket.
a. Find the net proceeds from sale of the bond, ^{D{n}} .
b. Show the cash flows from the firm’s point of view over the maturity of the bond.
c. Calculate the before-tax and after tax costs of debt.
d. Use the approximation formula to estimate the before tax and after tax costs of debt
e. Compare and contrast the costs of debt calculated in parts c and d. Which approach do you prefer? Why?
Answers: 3
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