Bender and Co. is issuing a $1,000 par value bond that pays 9% interest annually.

Bender and Co. is issuing a $1,000 par value bond that pays 9% interest annually. Investors are expected to pay $918 for the 10-year bond. Bender will have to pay $33 per bond in flotation costs. What is the cost of debt if the firm is in the 34% tax bracket?
A.

7.23%
B.

9.01%
C.

9.23%
D.

11.95%

Solution