Question: Porky Pine Co. is issuing a $1,000 par value bond that pays 8.5% interest annually. The market price is expected to be $1,100 for the

Porky Pine Co. is issuing a $1,000 par value bond that pays 8.5% interest annually. The market price is expected to be $1,100 for the 20-year bond. Porky will pay 4.5% per bond in flotation costs. What is the after-tax cost of new debt if the firm is in the 35% tax bracket?

7.19%

5.19%

7.52%

4.89%

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