Question

Suppose a company will issue new 15-year debt with a par value of $1,000 and a coupon rate of 8%, paid annually. The issue price will be $1,000. The tax rate is 40%.

a. If the flotation cost is 2% of the issue proceeds, then what is the after-tax cost of debt?

b. What if the flotation costs were 10% of the bond issue?

Answer #1

Suppose a company will issue new 15-year debt with a par value
of $1,000 and a coupon rate of 8%, paid annually. The issue price
will be $1,000. The tax rate is 40%.
a. If the flotation cost is 2% of the issue proceeds, then what
is the after-tax cost of debt?
b. What if the flotation costs were 10% of the bond issue?
CAN YOU SHOW STEPS

Suppose a company will issue new 25-year debt with a par value
of $1,000 and a coupon rate of 9%, paid annually. The issue price
will be $1,000. The tax rate is 25%. If the flotation cost is 2% of
the issue proceeds, then what is the after-tax cost of debt? Round
your answer to two decimal places. ____% What if the flotation
costs were 10% of the bond issue? Round your answer to two decimal
places. ____%

The Cost of Debt and Flotation Costs
Suppose a company will issue new 20-year debt with a par value
of $1,000 and a coupon rate of 9%, paid annually. The issue price
will be $1,000. The tax rate is 40%. If the flotation cost is 2% of
the issue proceeds, then what is the after-tax cost of debt? What
if the flotation costs were 10% of the bond issue?

Suppose a company will issue new 20-year debt with a par value
of $1,000 and a coupon rate of 9%, paid annually. The issue price
will be $1,000. The tax rate is 25%. If the f lotation cost is 2%
of the issue proceeds, then what is the after-tax cost of debt?
What if the f lota-tion costs were 10% of the bond issue?

The Cost of Debt and Flotation Costs.
Suppose a company will issue new 25-year debt with a par value
of $1,000 and a coupon rate of 10%, paid annually. The issue price
will be $1,000. The tax rate is 35%. If the flotation cost is 5% of
the issue proceeds, then what is the after-tax cost of debt?
Disregard the tax shield from the amortization of flotation costs.
Round your answer to two decimal places.
What if the flotation...

uppose a company will issue new 20-year debt with a par value of
$1,000 and a coupon rate of 9%, paid annually. The tax rate is 35%.
If the flotation cost is 5% of the issue proceeds, then what is the
after-tax cost of debt? Disregard the tax shield from the
amortization of flotation costs. Round your answer to two decimal
places. %

The Cost of Equity and Flotation Costs
Messman Manufacturing will issue common stock to the public for
$30. The expected dividend and the growth in dividends are $4.00
per share and 5%, respectively. If the flotation cost is 11% of the
issue's gross proceeds, what is the cost of external equity,
re? Round your answer to two decimal places.
__%
The Cost of Debt and Flotation Costs.
Suppose a company will issue new 25-year debt with a par value
of...

Sample company is considering issuing a new 20 year debt issue
that would pay an annual coupon payment of $90. Each bond in the
issue would carry a $1,000 par value and would be expected to be
sold for a price equal to it par value.
Sample point out that the firm would incur a floatation cost of
2% when initially issuing the bond issue. Remember, the flotation
cost will be --------- (subtracted or added) from the proceeds the
firm...

9. Lee Airlines plans to issue 15-year bonds with a par value of
$1,000 that will pay $50 every six months. The bonds have a market
price of $920. Flotation costs on new debt will be 6%. If the firm
is in the 35% marginal tax bracket, what is the posttax cost of new
debt?

New Jet Airlines plans to issue 16-year bonds with a par value
of $1,000 that will pay $40 every six months. The bonds have a
market price of $1,340. Flotation costs on new debt will be 7%. If
the firm has a 35% marginal tax bracket, what is cost of existing
debt?

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