Question

Reason corp just issued a series of 24 year maturity bonds with a oar value of 1000 and a 5 % coupon, paid semianually the bonds can sell in the open market for 1175. Flotation costs on the new bonds

Answer 1

the rate is 4.36%

Explanation:

The computation of the pre tax cost of debt is shown below:

Given that

NPER = 24 × 2 = 48

FV = $1,000

PMT = $1,000 ×5% ÷ 2 = $25

FV = $1,175 - $80

= $1,095

The formula is shown below:

= RATE(NPER;PMT;-PV;FV;TYP

After applying the above formula, the rate is 4.36%