An underwriter foresees that ABC’s P10,000,000 face value bonds can be sold at P10,500,000. However, ABC will only be collecting 99% of the issuance price as the underwriter will be charging 1% of the issuance price as flotation cost. The nominal rate is 8% due at the end of each of the 5 years of its term. What is the expected effective cost of the bond based on the

An underwriter foresees that ABC’s P10,000,000 face value bonds can be sold at P10,500,000. However, ABC will only be collecting 99% of the issuance price as the underwriter will be charging 1% of the issuance price as flotation cost. The nominal rate is 8% due at the end of each of the 5 years of its term. What is the expected effective cost of the bond based on the

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter12: The Cost Of Capital

Section: Chapter Questions

Problem 2P

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