Cost of debt using both methods (YTM and the approximation formula)Currently, Warren Industries can sell

15 dash year

,

$1 comma 000

-par-value

bonds paying annual interest at a

7

%

coupon rate. Because current market rates for similar bonds are just under

7

%,

Warren can sell its bonds for

$1 comma 010

each; Warren will incur flotation costs of

$30

per bond. The firm is in the

21

%

tax bracket.

a.Find the net proceeds from the sale of the bond,

Upper N Subscript d

.

b.Calculate the bond's yield to maturity

(YTM)

to estimate the before-tax and after-tax costs of debt.

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

a.The net proceeds from the sale of the bond,

Upper N Subscript d

,

is

$