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2. Notable Nothings plans to issue new bonds with the same yield as its existing bonds. The existing bonds have a coupon rate of interest equal to 5.6% (semiannual interest payments), 12 years remaining until maturity, and a $1,000 maturity value; they are currently selling for $918 each. a. If Notable issues new bonds today, what will be its before-tax cost of debt? b. What will be its before-tax cost of debt if the price of its existing bonds is $730 when Notable issues the new bonds?

2. Notable Nothings plans to issue new bonds with the same yield as its existing bonds. The existing bonds have a coupon rate of interest equal to 5.6% (semiannual interest payments), 12 years remaining until maturity, and a $1,000 maturity value; they are currently selling for $918 each. a. If Notable issues new bonds today, what will be its before-tax cost of debt? b. What will be its before-tax cost of debt if the price of its existing bonds is $730 when Notable issues the new bonds?

EBK CFIN
EBK CFIN
6th Edition
ISBN:9781337671743
Author:BESLEY
Publisher:BESLEY
Chapter11: The Cost Of Capital
Section: Chapter Questions
Problem 2PROB
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2. Notable Nothings plans to issue new bonds with the same yield as its existing bonds. The existing bonds have a coupon rate of interest equal to 5.6% (semiannual interest payments), 12 years remaining until maturity, and a $1,000 maturity value; they are currently selling for $918 each. a. If Notable issues new bonds today, what will be its before-tax cost of debt? b. What will be its before-tax cost of debt if the price of its existing bonds is $730 when Notable issues the new bonds?
Transcribed Image Text:2. Notable Nothings plans to issue new bonds with the same yield as its existing bonds. The existing bonds have a coupon rate of interest equal to 5.6% (semiannual interest payments), 12 years remaining until maturity, and a $1,000 maturity value; they are currently selling for $918 each. a. If Notable issues new bonds today, what will be its before-tax cost of debt? b. What will be its before-tax cost of debt if the price of its existing bonds is $730 when Notable issues the new bonds?
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