The after-tax cost of financing using approximation formula

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The cost of debt Gronseth Drywall systems, inc. is in discussions with its investment bankers regrding the issuance of bonds. The investment banker has informed the firm that different maturities will carry differrent coupon rates and sell different prices. The firm must choose among several alternatives. In each case, the bonds will have a $1000 par value and flotation costs will be $40 per bond. The company is taxed at 35%. Use the approximation formula to calculate the after-tax cost of financing with the following alternative.

Coupon rate Time to Maturity Premium or Discount

10% 16 yrs $280

The after-tax cost of financing using the approximation formula is? (round to two decimal places)

Reference no: EM131923607

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