At the current time warren industries can issue 15-year

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At the current time Warren Industries can issue 15-year, $1,000 par-value bonds paying annual interest at a 12% coupon rate. As a result of current interest rates, the bonds can be sold for $1,010 each. Flotation costs of $30 per bond will be incurred in the process (which implies that f = 2.97%, or 0.0297 in decimal form) and the firm is in a 40% tax bracket.

(a) Find the net proceeds from the sale of each bond for Warren Industries.

(b) Calculate the before-tax and the after-tax cost of debt for Warren Industries.

Reference no: EM13621521

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