Currently, Warren Industries can sell 20-year, $1,000-par-value bonds paying annual interest at a 13% coupon rate. As a result of current interest rates, the bonds can be sold for $1,030 each before incurring flotation costs of $30 per bond. The firm is in the 40% tax bracket.
a. Find the net proceeds from the sale of the bond, Nd.
b. Calculate the bond's yield to maturity (YTM) to estimate the before-tax and after-tax costs of debt.
c. Use the approximation formula to estimate the before-tax and after-tax costs of debt.