Flotation costs and the cost of debt Currently, Warren Industries can sell 15-year, $1,000-par-value bonds paying annual interest at a 13% coupon rate. Because current market rates for similar bonds are just under 13%, Warren can sell its bonds for $970 each; Warren will incur flotation costs of $35 per bond. The firm is in the 24% tax bracket.

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

b.  Calculate the before-tax and after-tax costs of debt.

 

Before-tax cost of debt Gronseth Drywall Systems, Inc., is in discussions with its investment bankers regarding the issuance of new bonds. The investment banker has informed the firm that different maturities will carry different coupon rates and sell at different prices. The firm must choose among several alternatives.  

In each case, the bonds will have a $1,000 par value and flotation costs will be $30 per bond. Calculate the before-tax cost of financing with the following alternative. 

 

Coupon rate	Time to maturity	Premium or discount
7%	18 years	$190

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Part 1

The before-tax cost of debt is enter your response here%. (Round to two decimal places.)

Answer rating: 100% (QA)

Answer Net proceeds from the sale of the bond 1000 35 970 5 Explanation The net proceeds from the sa... View the full answer