Problem:
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.
Required:
Question: 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%
Please provide all computations and formulas.