Compute the market value of the bonds

(Cost of Debt) Sincere Stationary corporation needs to raise %451,000 to improve its manufacturing plant. It has

decided to issue $1,000 par value bond with an annual coupon rate of 11.1% with interest paid semiannually and a 15 year maturity. Investors require a rate of return of 9.6%.

  • Compute the market value of the bonds
  • How many bonds will the firm have to issue to receive the needed funds?
  • What is the firms after-tax cost of debt if the firm’s tax rate is 34%?

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