Gronseth Drywall Systems, inc., is in discussions with its investment bankers regarding the issuance of new bonds. The investment banker has informed the firm that different maturities will carry different coupon rates and sell at different prices. The firm must choose among sevel alternatives. In each case, the bonds will have a $1000 par value and flotation costs will be $35 per bond. The company is taxed at 35% Use the approximation formula to calculate the after-tax cost of financing with the following alternative. (See information below)
Coupon Rate: 8%
Time to Maturity: 11 Years
Premium or Discount: $260