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Question
A company is going to issue a $1,000 par value bond that pays a 7% annual coupon. The company expects investors to pay $942 for the 20-year bond. The expected flotation cost per bond is $42, and the firm is in the 34% tax bracket. Compute the following:a. the yield to maturity on the firm's bonds
b. the firm's after-tax cost of existing debt
c. the firm's after-tax cost of new debt
Answer
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