Issuing a new 10 year, $1000 par, 6% annual coupon bonds. Market price of the bonds is $1045 each. Flotation expense on new bonds will be $10 per bond. Marginal tax rate is 30%. What is the pre-tax cost of debt for the newly-issued bonds?
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Issuing a new 10 year, $1000 par, 6% annual coupon bonds. Market price of the bonds is $1045 each. Flotation expense on new bonds will be $10 per bond. Marginal tax rate is 30%. What is the pre-tax cost of debt for the newly-issued bonds?
simply find the IRR of th cash inflows , while the cash out flow is price of the bond. The answer is 3.85% ( 102 is not the cash out flow as the market has valued the bond more because the YTM is less then the coupon rate.(Cetirus peribus)Use Excel.
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