Global Products plans to issue long-term bonds to raise funds to finance its growth. The company has existing bonds outstanding that are similar to the new bonds it expects to issue. The existing bonds, which have a face value equal to $1,000 and a coupon rate of interest equal to 7 percent (semiannual payments), mature in 20 years. These bonds are currently selling for $949 each. Global's marginal tax rate is 40 percent. a. What should be the coupon rate on the new bond issue? Round your answer to one decimal place. 3.7 % b. What is Global's after-tax cost of debt? Round your answer to one decimal place. 2.2 %

Global Products plans to issue long-term bonds to raise funds to finance its growth. The company has existing bonds outstanding that are similar to the new bonds it expects to issue. The existing bonds, which have a face value equal to $1,000 and a coupon rate of interest equal to 7 percent (semiannual payments), mature in 20 years. These bonds are currently selling for $949 each. Global's marginal tax rate is 40 percent. a. What should be the coupon rate on the new bond issue? Round your answer to one decimal place. 3.7 % b. What is Global's after-tax cost of debt? Round your answer to one decimal place. 2.2 %

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter3: Evaluation Of Financial Performance

Section: Chapter Questions

Problem 17P

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