Question

nlewOTR.Moduie 4 re: 0 of 1 pt blem 9-12 (similar to) Homework 11 oF 20 (9 complete) HW Score: 375%, E Question st of debl) Sincere Stationery Corporation needs to raise $800,000 to imprave its manufacturing plant it has decided to issue a $1,000 par value bond with an annual coupon rate of 17 percent and a maturity of 16 yea estors require a rate of return of 11 percent Computo the market value of the bonds What will the net price be i fotation costs are 11 percent of the market price? How many bonds will the firm have to issue to receive the needed funds What is the ms ater-tax cost of dekt it its average tax rate is 25 percent and its marginal tax rate is 32 percent What is the market value of the bonds?

Answer 1

a)we use pv formaule in excel to find this
=pv(rate,nper,pmt,fv,type)
rate=11%
nper=16
pmt=coupon rate*face value=16%*1000=160
fv=1000
type=0
=pv(11%,16,160,1000,0)
=1368.96
b)=pv(rate,nper,pmt,fv,type)
rate=11%
nper=16
pmt=coupon rate*face value=16%*1000=160
fv=1000*(1-11%)=890
type=0
=pv(11%,16,160,890,0)
=1348.25
c)bonds to be issued=800000/1368.96=585 bonds
d)we use marginal tax rate here
after tax cost of debt=YTM*(1-tax)
=11%*(1-32%)=7.48%