Question: Bonds For this week's discussion, please complete problem 11-3 on page 272(Universal Manufacturing).In addition, you should be able to upload an excel file! 11-3. Universal

Bonds

For this week's discussion, please complete problem 11-3 on page 272(Universal Manufacturing).In addition, you should be able to upload an excel file!

11-3. Universal Manufacturing plans to issue long-term bonds to raise funds to support future expansion. The company has existing bonds outstanding that are similar to the new bonds it expects to issue. The existing bonds have a face value equal to $1,000, have a coupon rate of interest equal to 5 percent (semiannual payments), and mature in 14 years. These bonds are currently selling for $1,084 each. Universal's marginal tax rate is 35 percent.

(a) What should be the coupon rate on the new bond issue?
(b)What is Universal's after-tax cost of debt?

11-4 What are bond maturity and marginal tax rates, what makes them significant?

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