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Blue Sky Corporation is planning to issue $1,000 par value bonds. The bonds will have a coupon rate of 14 percent and will be sold at a market price of $1050. Flotation costs will amount to 6 percent of market value. The bonds will mature in 15 years and interest payments will be made semi-annually. The company's marginal tax rate is 21%. What is the firm's after-tax cost of debt financing? 9.38% 11.06% 11.23% O 14.00% 14.21%

Blue Sky Corporation is planning to issue $1,000 par value bonds. The bonds will have a coupon rate of 14 percent and will be sold at a market price of $1050. Flotation costs will amount to 6 percent of market value. The bonds will mature in 15 years and interest payments will be made semi-annually. The company's marginal tax rate is 21%. What is the firm's after-tax cost of debt financing? 9.38% 11.06% 11.23% O 14.00% 14.21%

EBK CFIN
EBK CFIN
6th Edition
ISBN:9781337671743
Author:BESLEY
Publisher:BESLEY
Chapter11: The Cost Of Capital
Section: Chapter Questions
Problem 1PROB
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Question 9 Blue Sky Corporation is planning to issue $1,000O par value bonds. The bonds will have a coupon rate of 14 percent and will be sold at a market price of $1050. Flotation costs will amount to 6 percent of market value. The bonds will mature in 15 years and interest payments will be made semi-annually. The company's marginal tax rate is 21%. What is the firm's after-tax cost of debt financing? 9.38% 11.06% O 11.23% 14.00% 14.21%
Transcribed Image Text:Question 9 Blue Sky Corporation is planning to issue $1,000O par value bonds. The bonds will have a coupon rate of 14 percent and will be sold at a market price of $1050. Flotation costs will amount to 6 percent of market value. The bonds will mature in 15 years and interest payments will be made semi-annually. The company's marginal tax rate is 21%. What is the firm's after-tax cost of debt financing? 9.38% 11.06% O 11.23% 14.00% 14.21%
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