You need to raise $$1,000,000$ to buy a dam that will provide energy to your town. Your tax rate is $40\%.$ You would like to finance the transaction by issuing $20-$year bonds at a $8\%$ coupon rate, payable annually.

$($a$)$ What is your before$-$tax and after$-$tax $“$cost of money$”($taking into account that the coupon payments on the bonds are tax$-$deductible, but not the repayment of principal in year $20),$ if the bonds sell for face value? Briefly discuss your results. Solution: before$-$tax: $8\%,$ after$-$tax: $4\mathrm{.}8\%$ per year.

$($b$)$ Would this financing option be good enough to consider if your minimum acceptable rate of return was $10\%?$

$($c$)$ Would this financing option be good enough to consider if your minimum acceptable rate of return was $4\%?$

$($d$)$ What$’$s the price of the bond at a MARR $=10\%$ per year? Use a before$-$tax analysis and solve manually $($i$.$e$.,$ using factor notation$)$