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​(Cost of debt​) Sincere Stationery Corporation needs to raise ​$750,000 to improve its manufacturing plant. It...

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Finance

​(Cost of debt​) Sincere Stationery Corporation needs to raise​$750,000 to improve its manufacturing plant. It has decided toissue a ​$1,000 par value bond with an annual coupon rate of 16percent and a maturity of 15 years. The investors require a rate ofreturn of 8 percent.

a. Compute the market value of the bonds.

b. What will the net price be if flotation costs are

1111

percent of the market​ price?

c. How many bonds will the firm have to issue to receive theneeded​ funds?

d. What is the​ firm's after-tax cost of debt if its average taxrate is 25 percent and its marginal tax rate is

3737

​percent?

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