Currently, Warren industries can sell 10-year, $1000-par-value bonds paying annu

Question

Currently, Warren industries can sell 10-year, $1000-par-value bonds paying annual interest at 9% coupon rate. As a result of current interest rates, the bonds can be sold for $990 each before incurring flotation costs of $30 per bond. The firm is in the 30% tax bracket. a.) find the net proceeds from the sale of the bond, Nd b.) Calculate the bonds yield to maturity (YTM) to estimate the before-tax and after-tax costs of debt. c.) use the approximation formula to estimate the before-tax and after-tax costs of debt. please show work

Explanation / Answer

Hi, If you like my answer rate me lifesaver first...that way only I can earn points. Thanks a) Net proceeds = $990 - 30 = $960 b) YTM before tax = 9.16% c) before tax = 9.16% after tax cost = 9.16% * (1-30%) =6.41%

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