Estimate the before-tax and after- tax cost of debt

Reference no: EM131965274

Question: 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 this process. The firm is in the 40% tax bracket.

A. CalCulate the bond's yield to maturity (YTM) to estimate the before-tax and after- tax cost of debt.

B. Use the approximation formula to estimate the before-tax and after-tax costs of debt.

Reference no: EM131965274

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