Cost of debt using both methods currently

Reference no: EM131130171

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 ofcurrent interest rates, the bonds can be sold for $1,010 each; flotation costs of $30per bond will be incurred in this 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 ofdebt.e. Compare and contrast the costs of debt calculated in parts c and d. Whichapproach do you prefer? Why?

Reference no: EM131130171

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