Nico Trading Corporation Is Considering Issuing Long-Term Debt

question 100

Multiple Choice

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

• A) 7.26%.
• B) 11.17%.
• C) 10.00%.
• D) none of the above.

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