BUS 401 Week 3 Problem 9-9

# BUS 401 Week 3 Problem 9-9

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BUS 401 Week 3 Problem 9-9

Study Problem 9-9
9-9. (Cost of debt) Sincere Stationery Corporation needs to raise \$500,000 to improve its manufacturing plant. It has decided to issue a$1,000 par value bond with a 14 percent annual coupon rate and a 10-year maturity. The investors require a 9 percent rate of return.
a.    Compute the market value of the bonds.
b.    What will the net price be if flotation costs are 10.5 percent of the market price?
c.    How many bonds will the firm have to issue to receive the needed funds?
d.    What is the firms after-tax cost of debt if its average tax rate is 25 percent and its marginal tax rate is 34 percent?

BUS 401
moduloP

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Excerpt from file: CHAPTER9PROBLEMS COSTOFCAPITAL PROBLEM99 COSTOFDEBT DATA parvalue couponrate years rateofreturn neededfunds A) Value 1, 14% 10 9% 500, 1, B) flotation netprice C) Howmany D) taxrate Marginaltaxrate % 1, 423 25% 34% CostofDebt ATCost % % Page Page

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Filename: DBM 380 Week 2 DQs.docx

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