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Options for financing a new expansion

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Rogner Industries has four options for financing a new expansion. 

1. Issue 5,000 10-year bonds with a par value of $1,000. Bonds have a coupon rate of 8.4% with semiannual coupons, sell for $956.22, and have an issuance fee of 2.0%.

2. Issue 5,000 12-year bonds with a par value of $1,000. Bonds have a coupon rate of 7.8% with quarterly coupons, sell for $1,013.14, and have an issuance fee of 1.8%.

3. Obtain a $5,000,000 10-year loan with an interest rate of 8.6%.

4. Obtain a $5,000,000 12-year loan with an interest rate of 8.8%.

If Rogner has a tax rate of 34%, which debt option will result in the LOWEST cost of debt?

  • A Option 4 
  • B Option 3 
  • C Option 2 
  • D Option 1

Reference no: EM132288690

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