Problem:
St. Thomas Company is planning to issue $1,000 par value bonds. The bonds will have a coupon rate of 9.5 percent and will be sold at a market price of $980. Flotation costs will amount to 4 percent of market value. The bonds will mature in 15 years and coupon payments will be semi-annual. St. Thomas' marginal tax rate is 35%.
Required:
What is the firm's cost of debt financing?
- 6.93%
- 6.68%
- 6.34%
- 10.28%
- 9.76%
Note: Please show guided help with steps and answer.