The firm can raise an unlimited amount of debt by selling R1,000 par value, 8% coupon interest rate, 20 year bonds on which annual interest payments will be made. To sell the issue, an average discount of R50 per bond would have to be given. The firm also must pay flotation costs of R50 per bond. Firm is in 40% tax bracket. Determine after tax cost of debt.
The firm can raise an unlimited amount of debt by selling R1,000 par value, 8% coupon interest rate, 20 year bonds on which annual interest payments will be made. To sell the issue, an average discount of R50 per bond would have to be given. The firm also must pay flotation costs of R50 per bond. Firm is in 40% tax bracket. Determine after tax cost 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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The firm can raise an unlimited amount of debt by selling R1,000 par value, 8% coupon interest rate, 20 year bonds on which annual interest payments will be made. To sell the issue, an average discount of R50 per bond would have to be given. The firm also must pay flotation costs of R50 per bond. Firm is in 40% tax bracket. Determine after tax cost of debt.
- A. 5.86%
- B. 5.48%
- C. 5.46%
- D. 5.55%
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