Microfinance Company needs to raise $800,000 to improve the position of cash. It has decided to issue a $1,000 par value bond with 15 percent annual coupon rate and 5-year maturity. The investors require 16 percent rate of return.

a. Compute the market value of bonds.

b. What will the net price if the flotation cost is 5 percent of the market price?

c. How many bonds will the company have to issue to receive $800,000?

d. What is the company s after-tax cost of debt if the average tax rate is 20 percent and the marginal tax rate is 30 percent?

Answer rating: 100% (QA)

a Let us find the market price of the bond using pv formuale ... View the full answer