Cost of debt using both methods (YTM and the approximation formula) Currently, Warren Industries can sell 10-year, $1,000-par-value bonds paying annual interest at a 9% coupon rate. Because current market rates for similar bonds are just under 9%, Warren can sell its bonds for $1,100 each; Warren will incur flotation costs of $25 per bond. The firm is in the 22% tax bracket.

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

Upper N Subscript dNd.

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 $ . (Round to the nearest dollar.)

b.Using the bond's YTM, the before-tax cost of debt is %. (Round to two decimal places.)

Using the bond's YTM, the after-tax cost of debt is %. (Round to two decimal places.)

c.Using the approximation formula, the before-tax cost of debt is %. (Round to two decimal places.)

Using the approximation formula, the after-tax cost of debt is %. (Round to two decimal places.)