Sincere Stationery Corporation needs to raise â$800,000 to improve its manufacturing plant. It has decided to issue a â$1,000 par value bond with an annual coupon rate of 15 percent and a maturity of 18 years. The investors require a rate of return of 12 percent.
a.ââCompute the market value of the bonds.
b.ââWhat will the net price be if flotation costs are 12 percent of the marketâ price?
c.ââHow many bonds will the firm have to issue to receive the neededâ funds?
d.ââWhat is theâ firm's after-tax cost of debt if its average tax rate is 25 percent and its marginal tax rate is 37 âpercent?
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