Homework Help: Finance

Posted by matt on Wednesday, October 19, 2011 at 5:25pm.

Nico Trading corporation is considering issuing long-term debt. The debt would have a 30 year maturity an a 10 percent coupon rate. In order to sell the issue, the bonds must be underpriced at a discount of 5 percent of face value. In addition, the firm would have to pay flotation costs of 5 percent of face value. The firm's tax rate is 35 percent. Given this information, the after tax cost of debt for Nico Trading would be?

Corporate Finance - Oscar V, Thursday, April 12, 2012 at 4:08am
Ans: 7.26%

N=30
I=
PV=900 (1000)(1-.05-.05)
PMT=-100
FV= -1000

I= 11.65(1-.65)= 7.26%
Finance - Oscar V, Thursday, April 12, 2012 at 4:11am
Ans: 7.26%

N=30
I=
PV=900 (1000)(1-.05-.05)
PMT=-100
FV= -1000

I= 11.65(1-.35)= 7.26%

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