Dublin
International Corporation’s marginal tax rate is 40%. It can issue
three-year bonds with a coupon rate of 8.5% and par value of $1,000. The
bonds can be sold now at a price of $938.90 each. The underwriters will
charge $23 per bond in flotation costs. Determine the approximate
after-tax cost of debt for Dublin International to use in a capital
budgeting analysis.
A. 9.2% B. 5.1% C. 8.5% D. 6.0%
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