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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 -

    Ans: 7.26%

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

    I= 11.65(1-.65)= 7.26%

  • Finance -

    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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