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Cost of debt using both methods: Currently, Warren Industries can sell 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. The firm is in the 40% tax bracket.
A) Find the net proceeds from sale of the bond, Nd.
B) Show the cash flows from the firm’s point of view over the maturity of the bond.
C) Calculate the before-tax and after-tax costs of debt.
D) Use the approximation formula to estimate the before-tax and after-tax costs of debt.
E) Compare and contrast the costs of debt calculated in parts c and d. Which approach do you prefer? Why?
River Cruises is all-equity-financed with 100,000 shares. It now proposes to issue $280,000 of debt at an interest rate of 12% and use the proceeds to repurchase 28,000 shares at $10 per share. Profits before interest are expected to be $128,000. Wha..
in working out your responses to the discussion question you should choose examples from your own experience or find
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If a firm has twice as much equity as debt in its capital structure, then the firm is financed with:
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Which of the following best explains why municipal bonds have lower interests than Treasury bonds?
Synergy between two companies: Compound rates, not discount rates, are used in an attempt to?
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