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Sincere Stationery Corporation needs to raise $500,000 to improve its manufacturing plant

Sincere Stationery Corporation needs to raise $500,000 to improve its manufacturing plant
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Solution Guide / Answer Key:

FINANCE

From Chapter 11, complete Study Problem 11-10 (page 365) and post the answers to the discussion board. Remember to complete all parts of the problems and report the results of your analysis. Do not forget to show the necessary steps and explain how your attained that outcome.

Cost of Debt
Sincere Stationery Corporation needs to raise $500,000 to improve its manufacturing plant. It has decided to issue a $1,000 par value bond with a 14 percent annual coupon rate and a 10-year maturity. The investors require a 9 percent rate of return.
a. Compute the market value of the bonds.
b. What will the net price be if floatation costs are 10.5 percent of the market price?
c. How many bonds will the firm have to issue to receive the needed funds?
d. What is the firm’s after-tax cost of debt if its average tax rate is 25 percent and its marginal tax rate is 34 percent?

 

FILE: MS WORD

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