An international pharmaceutical company is initiating a new project that requires $2.5 million in debt capital. The current plan is to sell 20-year bonds that pay 4.2% per year, payable quarterly, at a 3% discount on the face value. The company has an effective tax rate of 35% per year. Determine (a) the total face value of the bonds required to obtain $2.5 million, and (b) the effective annual after-tax cost of debt capital using two methods—factors and spreadsheet functions.

An international pharmaceutical company is initiating a new project that requires $2.5 million in debt capital. The current plan is to sell 20-year bonds that pay 4.2% per year, payable quarterly, at a 3% discount on the face value. The company has an effective tax rate of 35% per year. Determine (a) the total face value of the bonds required to obtain $2.5 million, and (b) the effective annual after-tax cost of debt capital using two methods—factors and spreadsheet functions.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 32P

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