Pellham Company is using debt to finance a new expansion. It sold 2,000 10-year bonds with a $1,000 par value. The bonds had annual coupon rates of 9.8%, paid semiannually, and they are selling for $964.29. The bonds also required a 2.5% issuance fee. Pellham also obtained a 10-year $3.5 million loan with an annual interest rate of 5.7%. Pellham has a tax rate of 35%. What is the BEST estimate of Pellham's cost of debt?

Answer rating: 100% (QA)

To calculate the cost of debt we need to consider both the bonds and the loan obtained by Pellham Company Bonds Par value 1000 Coupon rate 98 per year ... View the full answer