Cost of debt using both methods (YTM and the approximation formula)Currently, Warren Industries can sell...
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Cost of debt using both methods (YTM and the approximation formula)Currently, Warren Industries can sell 10-year, $1,000-par-value bonds paying annual interest at a 15% coupon rate. Because current market rates for similar bonds are just under 15%, Warren can sell its bonds for $970 each; Warren will incur flotation costs of $30 per bond. The firm is in the 25% tax bracket. a.Find the net proceeds from the sale of the bond, Nd. b.Calculate the bond's yield to maturity (YTM) to estimate the before-tax and after-tax costs of debt. c.Use the approximation formula to estimate the before-tax and after-tax costs of debt.
Coupon rate= 6%
Time to maturity= 18 years
Premium or discount= $270
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