Solving for r = .0986 or 9.86%
1. (cost of debt) Sincere Stationery Corporation needs to raise 500000 to improve its manufacturing plant. It has decided to issue a 1000$ par value bond with 14 percent annual coupon rate and a 10-year maturity. The investors require a9 percent rate of return.
A. Compute the market value of the bounds?
B. What will the net price be if flotation costs are 10.5 percent of the market price?
C. How many bounds will the firm have to issue to receive the needed funds?
D. What is the firm's after-tax cost of debt if its average tax rate is 25 percent and its marginal tax rate is 34 percent? E. Assume an 8 percent coupon rate. What effect does changing the coupon rate have on the firm's after-tax cost of capital? H. Why is there a change?