Field: Business & Finance
(Cost of debt) Sincere Stationery Corporation needs to raise $531,000 to improve its manufacturing plant. It has decided to issue a $1,000 par value bond with an annual coupon rate of 10.1 percent with interest paid semiannually and a 15-year maturity. Investors require a rate of return of 8.7 percent.
- Compute the market value of the bonds.
- How many bonds will the firm have to issue to receive the needed funds?
- What is the firm's after-tax cost of debt if the firm's tax rate is 32 percent?