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??Currently, Warren Industries can sell 15-year?, ?$1000?-par-value bonds paying annual interest at a 11?% coupon rate. Because...

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Finance

??Currently, Warren Industries can sell 15-year?,?$1000?-par-value bonds paying annual interest at a 11?% couponrate. Because current market rates for similar bonds are just under11?%, Warren can sell its bonds for ?$960?each; Warren will incurflotation costs of ?$30per bond. The firm is in the 29?% taxbracket.

a.??Find the net proceeds from the sale of the? bond,Upper NSubscript d.

b.??Calculate the? bond's yield to maturity? (YTM?) to estimatethe? before-tax and? after-tax costs of debt.

c.??Use the approximation formula to estimate the? before-taxand? after-tax costs of debt.

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4.0 Ratings (482 Votes)
Answer a Current Price 960 Flotation Cost 30 Net Proceeds Current Price Flotation Cost Net Proceeds 960 30 Net Proceeds 930 Answer b Par Value 1000 Net    See Answer
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Transcribed Image Text

??Currently, Warren Industries can sell 15-year?,?$1000?-par-value bonds paying annual interest at a 11?% couponrate. Because current market rates for similar bonds are just under11?%, Warren can sell its bonds for ?$960?each; Warren will incurflotation costs of ?$30per bond. The firm is in the 29?% taxbracket.a.??Find the net proceeds from the sale of the? bond,Upper NSubscript d.b.??Calculate the? bond's yield to maturity? (YTM?) to estimatethe? before-tax and? after-tax costs of debt.c.??Use the approximation formula to estimate the? before-taxand? after-tax costs of debt.

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