Sincere Stationery Corporation
needs to raise $500,000 to improve its manufacturing plant. It has decided to issue a $1,000 par value
bond with a 10 percent annual coupon
rate with interest paid semiannually and a 10-year maturity. The investors require a 9 percent rate of return.
a. Compute the market value of the bonds.
b. How many bonds will the firm have to issue to receive the needed funds?
c. What is the firm’s after-tax cost of debt
if its tax rate is 34 percent?
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
Cost Of Debt
The cost of debt is the effective interest rate a company pays on its debts. It’s the cost of debt, such as bonds and loans, among others. The cost of debt often refers to before-tax cost of debt, which is the company's cost of debt before taking...
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a...
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...