Costly Corporation plans a new issue of bonds with a par value of $1000, a...
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Costly Corporation plans a new issue of bonds with a par value of $1000, a maturity of 30 years, and an annual coupon rate of 13.0%. Flotation costs associated with a new debt issue would equal 8.0% of the market value of the bonds. Currently, the appropriate discount rate for bonds of firms similar to Costly is 17.0%. The firm's marginal tax rate is 30%. What will the firm's true cost of debt be for this new bond issue? 18.48% 12.93% 14.17% 9.92% 20.75%
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