Question

r estat a 13% coupon a les current markerer wir bonds Cost of using both methods (YTM and the approximation formula) Currenty, Warren Industries can el 20 year $1.000 par le bonds paying a W e cant bonds for $1.070 Waren will incur Bobiono 125 per bond. The firm is in the 20% wax bracket Find the proceeds from the sale of the bond, No b. Colore bonds yold to morty (YTM the before-baxandax costs of debt the approximation formula toime the b re-tax and tax costs of debt o The process from the sale of the bond. N b. Using the bonds YTM, the bor-tax cost of und to nearest doar (Hound to two decimal places) its Using the bonds YTM, tax cost of debts Round to two decimal places.) c. Using the prown for the forex cost f o und to two decimal places Ung the promotion for the f o und to two decimal places)

Answer 1

net proceeds from sale of bonds	selling price-flotation cost	1070-25	1045
Before tax cost of debt using ytm = using rate function in ms excel	rate(nper,pmt,pv,fv,type) nper = 20 pmt = 130 pv = 1045 fv =1000 type =0	RATE(20,130,-1045,1000,0)	12.38%
after tax cost of debt = before tax rate*(1-tax rate)	12.38*(1-.28)		8.91
YTM - using approximation formula	interest +(face value-net proceeds)/ n   / (par value+net proceeds)/2	130+(1000-1045)/20 / (1000+1045)/2	103.5/1022.5	10.12%
after tax cost of debt = before tax rate*(1-tax rate)	10.12*(1-.28)			7.29