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Angela wants to know:
Dublin International Corporation’s marginal tax rate is 40%. It can issue three-year bonds with a coupon rate of 8.5% and par value of $1,000. The bonds can be sold now at a price of $938.90 each. The underwriters will charge $23 per bond in flotation costs. Determine the appropriate after-tax cost of debt for Dublin International to use in a capital budgeting analysis.
A. 7.2%
B. 4.5%
C. 5.2%
D. 6.0%
Dublin International Corporation’s marginal tax rate is 40%. It can issue three-year bonds with a coupon rate of 8.5% and par value of $1,000. The bonds can be sold now at a price of $938.90 each. The underwriters will charge $23 per bond in flotation costs. Determine the appropriate after-tax cost of debt for Dublin International to use in a capital budgeting analysis.
A. 7.2%
B. 4.5%
C. 5.2%
D. 6.0%
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Tagged with: Flotation Costs • Par Value
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To get your answers for A-D, move the decimal to the left two places and add a “Zero” in front of the first number and multiply by the total cost. Example: 0.072.