P11-2 answers - P11-2 Cost of debt using both methods...

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c. Use the IRR approach to calculate the before-tax and after-tax costs of debt. * (excel formula on Pg 447) approach do you prefer? Why? T CF 0 $980 1–15 -120 15 -1,000 I= annual interest in dollars(coupon interest rate x par value) Nd=net proceeds from the sale of debt (bond) n=number of years to the bond’s maturity Nd= $980 Pv= 1000 I= 120 T= %40 P11-2 Cost of debt using both methods Currently, Warren Industries can sell 15-year, $1,000-par-value bonds paying annual interest at a 12% coupon rate. As a result of current interest rates, the bonds can be sold for $1,010 each; flotation costs of $30 per bond will be incurred in this process. The firm is in the 40% tax bracket. a. Find the net proceeds from sale of the bond, N d . (Pg 550) b. Show the cash flows from the firm’s point of view over the maturity of .d. Use the approximation formula to estimate the before-tax and after-tax costs of debt. e.
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This note was uploaded on 04/22/2011 for the course FIN & ACC 504 & 502 taught by Professor Harper&tai during the Spring '11 term at Grand Canyon.

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P11-2 answers - P11-2 Cost of debt using both methods...

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