Currently, Warren Industries can sell 15-year, $1,000-par-value bonds paying annual interest at a 15% coupon rate. As a result of current interest rates, the bonds can be sold for $1,060 each before incurring flotation costs of $35 per bond. The firm is in the 30?% tax bracket.
a. Find the net proceeds from the sale of the bond,Nd.
b. Calculate the bond's yield to maturit (YTM) and 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.