Finance: A $1 000 par value bond with a market price of $ 970
Finance: A $1 000 par value bond with a market price of $ 970
Subject: Business   / Finance
Question
A $1 000 par value bond with a market price of $ 970 and a coupon interest rate of 10 percent. Flotation costs for a new issue would be approximately 5 percent. The bonds mature in 10 years and the corporate tax rate is 34 percent.
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What is the firm’s after-tax cost of debt on the bond?