Currently, Warren Industries can sell 20-year, $1,000-par-value bonds paying annual interest at a 14% coupon rate. Because current market rates for similar bonds are just under 14%, Warren can sell its bonds for $960 each; Warren will incur flotation costs of $35 per bond. The firm is in the 22% tax bracket. a. Find the net proceeds from the sale of the bond, Nd. b. Calculate the before-tax and after-tax costs of debt.
Debenture Valuation
A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as the ‘coupon rate.’ Debentures are documented in an indenture, clearly specifying the type of debenture, the rate and method of interest computation, and maturity date.
Note Valuation
It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:
bonds paying annual interest at a 14% coupon rate. Because current market rates for similar bonds are just under 14%, Warren can sell its bonds for $960 each; Warren will incur flotation costs of $35 per bond. The firm is in the 22%
tax bracket.
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