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The Cost of Debt and Flotation Costs Suppose a company will issue new 20-year debt with...

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?

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