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# Capital Structure: Stephens Security

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Stephens Security has two financing alternatives: (1) A publicly placed \$50 million bond issue. Issuance costs are \$1 million, the bond has a 9% coupon paid semiannually, and the bond has a 20 year life. (2) A \$50 million private placement with a large pension fund. Issuance costs are \$500,000, the bond has a 9.2% annual coupon, and the bond has a 20 year life. Which alternative has the lower cost (annual percentage yield)?

Please show how to solve problem so I can figure this type of question out. Thanks!

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#### Solution Preview

If we look at the first financing option we can find that the cost of financing for the company is:
Issuance cost=\$1 million
Coupon rate=9% paid semiannually
So, annual percentage ...

#### Solution Summary

The solution examines capital structures for Stephens Security.

\$2.19