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Zion Manufacturing, Inc. is undergoing a major expansion. The expansion will be financed by issuing new...

Zion Manufacturing, Inc. is undergoing a major expansion. The expansion will be financed by issuing new 12-year, $1,000 par, 10% annual coupon bonds. The market price of the bonds is $1,050 each. Zion's flotation expense on the new bonds will be $20 per bond. Zion's marginal tax rate is 21%. Its pretax cost of debt is closest to:

A) 12.65%

B) 8.37%

C) 9.57%

D) 10.35%

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Answer #1

COUPON RATE 10.00% NPER = YEARS TO MATURITY PMT = $100.00 (face value x coupon rate) FACE VALUE $1,000.00 PRICE = PV = $1,030

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