Cost of debt using both methods (YTM) Currently, Warren Industries can sell 20-year, $1,000-par-value bonds paying annual interest at a 9 % coupon rate. As a result of current interest rates, the bonds can be sold for $960 each before incurring flotation costs of $25 per bond. The firm is in the 40 % tax bracket.
a. Find the net proceeds from the sale of the bond, Nd.
b. Calculate the bond's yield to maturity (YTM) to estimate the before-tax and after-tax costs of debt.
a. The net proceeds from the sale of the bond, Nd?, is $. (Round to the nearest dollar.)
b. Using the bond's YTM, the before-tax cost of debt is %. (Round to two decimal places.)
Using the bond's YTM, the after-tax cost of debt is %. (Round to two decimal places.)