A Corporation believes that it can sell long term-bonds with an 8% coupon rate, although the effective rate is 10%. If such bonds are part of A Corporation’s financing plans for next year, what is the after-tax (30% tax rate) cost of bonds for purposes of calculating the corporation’s cost of capital. A. 5.44% B. 7% C. 10% D. 14.00%

Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter11: Determining The Cost Of Capital
Section: Chapter Questions
Problem 9P: Bond Yield and After-Tax Cost of Debt A companys 6% coupon rate, semiannual payment, 1,000 par value...
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A Corporation believes that it can sell long term-bonds with an 8% coupon rate, although the effective rate is 10%. If such bonds are part of A Corporation’s financing plans for next year, what is the after-tax (30% tax rate) cost of bonds for purposes of calculating the corporation’s cost of capital.
A. 5.44%
B. 7%
C. 10%
D. 14.00%
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