A 10-year $1,000 bond sells for $980, and the flotation costs are 2% of the par...

Question

Question

A 10-year $1,000 bond sells for $980, and the flotation costs are 2% of the par value. The coupon rate is 8%. Put in the valu

business finance

Answer 1

Answer #1

Coupon dollars (I) = par value * coupon rate = $1000 * 8% = $80.

FC = 2% of par value = 2% of $1000 = $20.

Term (n) = 10

Price (P) = $980

Net Proceeds = P - FC = $980 - $20 = $960.

r_d is calculated using RATE function in Excel :

nper = 10 (years to maturity)

pmt = 80 (annual coupon payment)

pv = -960 (Net proceeds)

fv = 1000 (face value receivable at maturity)

RATE is calculated to be 8.61%.

r_d = 8.61%

- A3 A 8.61% fc =RATE(10,80,-960,1000) D E B C 3 |

Answer 2

Similar Homework Help Questions

A 10-year $1,000 bond sells for $980, and the flotation costs are 2% of the par...

A 10-year $1,000 bond sells for $980, and the flotation costs are 2% of the par value. The coupon rate is 8%. Put in the values of the variables and calculate the before-tax cost of capital from this bond? Coupon dollars (I) = Flotation costs in dollars (FC) = term (n) = Price (P) = Net proceeds (N_p) = rd = %
Click to see additional instructions A 10-year $1,000 bond sells for $980, and the flotation costs...

Click to see additional instructions A 10-year $1,000 bond sells for $980, and the flotation costs are 2% of the par value. The coupon rate is 8%. Put in the values of the variables and calculate the before-tax cost of capital from this bond? Coupon dollars (1) = Flotation costs in dollars (FC) = term (n) = O Price (P) - Net proceeds (N_p) =
Click to see additional instructions A 10-year $1,000 bond sells for $980, and the flotation costs are 2 % of the p...

Click to see additional instructions A 10-year $1,000 bond sells for $980, and the flotation costs are 2 % of the par value. The coupon rate is 8%. Put in the values of the variables and calculate the before-tax cost of capital from this bond? Coupon dollars (I) Flotation costs in dollars (FC) = term (n) Price (P) Net proceeds (N p) = % = PJ

6.4%, paid semi-annually Suppose a company issues 10 year debt with a par value of $1,000...

6.4%, paid semi-annually Suppose a company issues 10 year debt with a par value of $1,000 and a coupon rate of 6.4%, paid semi-ar The issue price will be $980. The tax rate is 30%. If the flotation costs are 4.5% of the issue proceeds, For the avoidance of doubt, assume the flotation costs are more than de minimis. a. What is the company's pre-tax cost of debt? a. What is the company's after-tax cost of debt?
suppose a company will issue new 20-year debt with a par value of $1,000 and a...

suppose a company will issue new 20-year debt with a par value of $1,000 and a coupon rate of 9%, paid annually. The issue price will be $1,000. The tax rate is 40%. If the flotation cost is 4% of the issue proceeds, then what is the after-tax cost of debt? Disregard the tax shield from the amortization of flotation costs. Round your answer to two decimal places. % What if the flotation costs were 10% of the bond issue?...
Black Hill Inc. sells $100 million worth of 23-year to maturity 14.94% annual coupon bonds. The...

Black Hill Inc. sells $100 million worth of 23-year to maturity 14.94% annual coupon bonds. The net proceeds (proceeds after flotation costs) are $977 for each $1,000 bond. What is the before-tax cost of capital for this debt financing? Round the answer to two decimal places in percentage form.

Great Seneca Inc. sells $100 million worth of 19-year to maturity 9.56% annual coupon bonds. The...

Great Seneca Inc. sells $100 million worth of 19-year to maturity 9.56% annual coupon bonds. The net proceeds (proceeds after flotation costs) are $995 for each $1,000 bond. The firm's marginal tax rate is 35%. What is the after-tax cost of capital for this debt financing?
Great Seneca Inc. sells $100 million worth of 27-year to maturity 14.39% annual coupon bonds. The...

Great Seneca Inc. sells $100 million worth of 27-year to maturity 14.39% annual coupon bonds. The net proceeds (proceeds after flotation costs) are $981 for each $1,000 bond. The firm's marginal tax rate is 40%. What is the after-tax cost of capital for this debt financing?
Bond Valuation A 20-year, 8% semiannual coupon bond with a par value of $1,000 sells for...

Bond Valuation A 20-year, 8% semiannual coupon bond with a par value of $1,000 sells for $1,100. (Assume that the bond has just been issued.) 20 Basic Input Data: Years to maturity: Periods per year: Periods to maturity: Coupon rate: Par value: Periodic payment: Current price 8% $1,000 $1,100 c. What would be the price of a zero coupon bond if the face value of the bond is $1,000 in 3 years and if the yield to maturity of similary...

Bond Valuation A 20-year, 8% semiannual coupon bond with a par value of $1,000 sells for...

Bond Valuation A 20-year, 8% semiannual coupon bond with a par value of $1,000 sells for $1,100. (Assume that the bond has just been issued.) Basic Input Data: Years to maturity: Periods per year. Periods to maturity: Coupon rate: Par value: Periodic payment: Current price 8% $1,000 $1,100 b. What would be the price of the bond if market interest rates change to: 12% 6% 10% Nominal market rate, r: Value of bond: