Homework Answers
1)
Price after flotation cost = 1000 (1 - 8%) = 920
Coupon = 10% of 1000 = 100
YTM = 10.91398%
Keys to use in a financial calculator:
FV 1000
PMT 100
PV -920
N 30
CPT I/Y
Cost of debt = YTM ( 1 - tax)
Cost of debt = 10.91398% (1 - 40%)
Cost of debt = 6.55%
2)
Price after flotation cost = 1000 (1 - 2%) = 980
Coupon = 10% of 1000 = 100
YTM = 10.21599%
Keys to use in a financial calculator:
FV 1000
PMT 100
PV -980
N 30
CPT I/Y
Cost of debt = YTM ( 1 - tax)
Cost of debt = 10.21599% (1 - 40%)
Cost of debt = 6.12%
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