Calculate the correct solution to the problem

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Reference no: EM132691867

You are required to show the following 3 steps for each problem (sample questions and solutions are provided for guidance):

(i) Describe and interpret the assumptions related to the problem.

(ii) Apply the appropriate mathematical model to solve the problem.

(iii) Calculate the correct solution to the problem. Submit all answers as percentages and round to two decimal places.

Reason Corp. just issued a series of 20-year maturity bonds with a par value of $1,000 and a 4% coupon, paid semiannually. The bonds can sell in the open market for $1,125. Flotation costs on the new bonds are $80. If Reason, Corp. is in the 35% tax bracket, what is the pre-tax cost of debt on the newly issued bonds?

Reference no: EM132691867

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