Problem:
LL Incorporated's currently outstanding 8% coupon bonds have a yield to maturity of 12%. LL believes it could issue new bonds at par that would provide a similar yield to maturity. If its marginal tax rate is 30%, what is LL's after-tax cost of debt?
Burnwood Tech plans to issue some $60 par preferred stock with a 7% dividend. A similar stock is selling on the market for $60. Burnwood must pay flotation costs of 6% of the issue price. What is the cost of the preferred stock?
Explain comprehensively and also provide formulas and calculations.