Question

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. ____%

Answer #1

uppose 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 35%. If the flotation cost is 2% 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 costs were 11% 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. %

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?

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 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 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?

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...

3. The cost of debt capital
The cost of debt that is relevant when companies are evaluating
new investment projects is the marginal cost of the new debt that
is to be raised to finance the new project.
The required return (or cost) of previously issued debt is often
referred to as the rate. It usually
differs from the cost of newly raised financial capital.
Consider the case of Cold Duck Brewing Company:
Cold Duck Brewing Company is considering issuing...

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