Urrently Warren Industries Can Sell 15 Year 1 000 Par Value Bonds Paying Annual

Urrently, warren industries can sell 15-year, $1,000-par-value bonds paying annual interest at a 12% coupon rate. as a result of current interest rates, the bonds can be sold for $1,010 each; flotation costs of $30 per bond will be incurred in this process. the firm is in the 40% tax bracket.

a. find the net proceeds from sale of the bond, nd.

b. showthecashflowsfromthefirm’spointofviewoverthematurityofthebond.

c. calculate the before-tax and after-tax costs of debt.

d. usetheapproximationformulatoestimatethebefore-taxandafter-taxcostsof debt.

e. compare and contrast the costs of debt calculated in parts c and

d. which approach do you prefer? why?

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