Compute after-tax cost of existing debt

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Question: 1. New Jet Airlines plans to issue 14-year bonds with a par value of $1,000 that will pay $60 every six months. The bonds have a market price of $1, 220. Flotation costs on new debt will be 4% of the selling price. If the firm has a 35% marginal tax bracket, compute the following:

a. Yield to maturity of debt

b. After-tax cost of existing debt

c. After-tax cost of new debt

2. Toombes, Inc. is issuing new common stock at a market price of $55. Dividends last year were $3.30 per share and are expected to grow at a rate of 6%. Flotation costs will be 5% of the market price. The company's marginal tax rate is 35%. Compute the cost of internal equity (retained earnings) and the cost of external equity (new common stock), respective.

Reference no: EM132013790

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