Nico Trading Corporation Is Considering Issuing Long-Term Debt

question 79

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 21 percent.Given this information,the after-tax cost of debt for Nico Trading would be ________.

• A)7.26%
• B)8.82%
• C)2.34%
• D)11.17%

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