Share
Explore BrainMass

cost of debt issue

Suppose you are in corporate treasury and placing a $50 million bond issue with a 5.56 percent coupon and a 20-year maturity. Interest is paid semiannually. On the day of the issue, prior to the formal go-ahead by the CFO, your investment bankers note that two other competing issues are being offered and suggest that your issue be priced to yield 5.60 percent to enhance broker interest. The CFO asks you to quickly calculate the increased cost to the company of the bankers' suggestion. What is the cost?

Please show calculations.

Solution Preview

cost of debt issue
Suppose you are in corporate treasury and placing a $50 million bond issue with a 5.56 percent coupon and a 20-year maturity. Interest is paid semiannually. On the day of the issue, prior to the formal go-ahead by the CFO, your investment bankers note that two other competing issues are being offered and suggest that your issue be priced to yield 5.60 percent to enhance broker interest. The CFO asks you to quickly calculate ...

Solution Summary

This solution is comprised of a detailed explanation to answer what is the cost.

$2.19