Airborne airlines inc has a $1,000 par value bond outstanding with 15 years to maturity. The bond carries an annual interest payment of $94 and is currently selling for $940. Airborne is in a 35 present tax bracket. The firm wishes to know what the aftertax cost of a new bond issue is likely to be. The yield to maturity on the new issue will be the same as the yield to maturity on the old issue because the risk and maturity date will be similar.
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