Currently, Warren Industries can sell 15–year, $1,000–par–value bonds paying annual interest at a 11% coupon rate. As a result of current interest rates, the bonds can be sold for $980 each before incurring flotation costs of $30 per bond. The firm is in the 30% tax bracket.

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

Answer rating: 100% (QA)

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