Principles of Finance - The Cost of Capital
1) (Cost of Debt) Belton is issuing a $1,000 par value bond that pays 7 percent annual interest and matures in 15 years. Investors are willing to pay $958 for the bond. Flotation costs will be 11 percent of market value. The company is in an 18 percent tax bracket. What will be the firm's after-tax cost of debt on the bond?