Bender and Co. is issuing a $1,000 par value bond that pays 9% interest annually. - 4019

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UoPExpert

UoPExpert

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Request Description

Bender and Co. is issuing a $1,000 par value bond that pays 9% interest annually. Investors are expected to pay $918 for the 10-year bond. Bender will have to pay $33 per bond in flotation costs. What is the cost of debt if the firm is in the 34% tax bracket? 

A. 

11.95%

B. 

9.23%

C. 

9.01%

D. 

7.23%

 
Solution Description

Bender and Co. is issuing a $1,000 par value bond that pays 9% interest annually. Investors are expected to pay $918 for the 10-year bond. Bender will have to pay $33 per bond in flotation costs. What is the cost of debt if the firm is in the 34% tax bracket?