Costly Corporation plans a new issue of bonds with a par value of $1000, a maturity of 39 years, and an annual coupon rate of 15.0%. Flotation costs associated with a new debt issue would equal 7.0% of the market value of the bonds. Currently, the appropriate discount rate for bonds of firms similar to Costly is 19.0%. The firm's marginal tax rate is 40%. What will the firm's true cost of debt be for this new bond issue?

Cost of debt is 15.73%

Explanation:

YTM is the true cost of debt of this bond.

Yield to maturity is the annual rate of return that an investor receives if a bond bond is held until the maturity. it is long term return which is expressed in annual rate.

Face value = $1,000

Coupon Payment = $1,000 x 15% = $150

Proceeds from issuance = $1,000 x (100% - 7% ) = $930

Number of payment = n = 39 years

Yield to maturity = [ C + ( F - P ) / n ] / [ (F + P ) / 2 ]

Yield to maturity = [ $150 + ( $1,000 - $930 ) / 39 ] / [ ($1,000 + $930 ) / 2 ]

Yield to maturity = 15.73%

d, conspicuous consumption is when you try to increase your wealth or social status (and in the case he's trying to create the perception of wealth considering he can't really afford it)

a

explanation:

reducti0n

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