Rework Problem 9-12. Assume a 16 percent coupon rate.

a. What effect does changing the coupon rate have on the firm’s after-tax cost of capital?

b. Why is there a change?

Data from problem 9-12

Microfinance Company needs to raise \($800,000\) to improve its cash position. It has decided to issue a \($1,000\) par value bond with a 15 percent annual coupon rate and a 5-year maturity. The investors require a 16 percent rate of return.