Cost of debt using both methods (YTM and the approximation formula)Currently, Warren Industries can sell 15-year, $1,000-par-value bonds paying annual interest at a 12% coupon rate. As a result of current interest rates, the bonds can be sold for $1,010 each before incurring flotation costs of $30 per bond. The firm is in the 40% tax bracket.

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

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.

Question content area bottom

Part 1

a.The net proceeds from the sale of the bond, Nd, is __

Part 2

b.Using the bond's YTM, the before-tax cost of debt is ___ %

Part 3

Using the bond's YTM, the after-tax cost of debt is __

Part 4

c.Using the approximation formula, the before-tax cost of debt is __ %

Using the approximation formula, the after-tax cost of debt is __ %