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Determine the pre-tax cost for a bond

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Reference no: EM132796858

Problem 1. Using the cost of debt approximation formula, determine the pre-tax cost for a bond that sells at $ 925 par value and pays a coupon of $ 85 for 20 years. The flotation costs are $ 5 per bond. You must show the calculations to receive a score for your answer.

Problem 2. For the case in the previous problem, calculate the cost of debt after taxes if the company's tax liability is 40%. You must show the calculations to receive a score for your answer.

Reference no: EM132796858

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