Financial Management: Theory & Practice
Financial Management: Theory & Practice
16th Edition
ISBN: 9781337909730
Author: Brigham
Publisher: Cengage
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Chapter 9, Problem 14P
Summary Introduction

To determine: The after-tax cost of debt at 2% flotation costs.

Summary Introduction

To determine: The after-tax cost of debt at 10% flotation costs.

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If a 5 year annual bond with a 6% coupon rate, currently priced at $988 and par value is $1000, what is the cost of debt before tax? For the question above, if the tax rate is 30%, how much is the after tax cost of debt?
Suppose a company will issue new 20-year debt with a par value of $1,000and a coupon rate of 9%, paid annually. The issue price will be $1,000. Thetax rate is 40%. If the flotation cost is 2% of the issue proceeds, then whatis the after-tax cost of debt? What if the flotation costs were 10% of thebond issue?
Jimstan & Jimstan Corp. can sell a new 10-year bond with an annual coupon of 5% and a face value of $1,000 for $1,070. The company will incur flotation costs of $40 per bond and has a tax rate of 25%. What is the company's after-tax cost of debt? (use linear allocation method.)

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Financial Management: Theory & Practice

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