Answer Happy

Before-tax cost of debt Gronseth Drywall Systems, Inc., is in discussions with its investment bankers regarding the issuance of new bonds. The investment banker has informed the firm that different maturities will carry different coupon rates and sell at different prices. The firm must choose among several alternatives. In each case, the bonds will have a $1,000 par value and flotation costs will be $30 per bond. Calculate the before-tax cost of financing with the following alternative. (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Coupon rate 9% Time to maturity 5 years Premium or discount - $250