Nico Trading Corporation Is Considering Issuing Long-Term Debt

question 19

True/False

Nico Trading Corporation is considering issuing long-term debt. The debt would have a 30 year maturity and a 10 percent coupon rate. In order to sell the issue, the bonds must be underpriced at a discount of 5 percent of face value. In addition, the firm would have to pay flotation costs of 5 percent of face value. The firm's tax rate is 35 percent. Given this information, the after tax cost of debt for Nico Trading would be 11.17 percent.

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Definitions:

Price Discrimination

A pricing strategy where a seller charges different prices for the same product or service to different customers, based on what the seller believes each customer will pay.

Oligopolistic Pricing

A pricing strategy adopted by companies in an oligopoly, where a few firms dominate the market and prices are often influenced by the actions of competitors.

Monopolistic Pricing

This refers to the practice by a monopolist to set prices higher than in competitive markets because they control a large portion of the market for a particular good or service.

Horizontal Demand

A market demand situation where a small change in price leads to a large change in quantity demanded, often indicative of a highly competitive market.