Problem:
Gillian Stationary Corporation needs to raise $600,000 to improve its manufacturing plant. It has decided to issue a $1,000 par value bond with an annual coupon rate of 8.0% with interest paid semi-annually and a 10 year maturity. Investors require a rate of return of 10.0%.
Required:
Question 1: Compute the market value of the bonds
Question 2: How many bonds will the firm have to issue to receive the needed funds?
Question 3: What is the firms after tax cost of debt if the firms tax rate is 34 percent?
Note: Please show how to work it out.