Gul corp considers the following capital structure optimal, Ask an Expert

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Gul Corp. considers the following capital structure optimal: 40% debt; 50% equity; and 10% preferred stock. Gul’s bond currently sells in the market for $1150. The bond carries an annual coupon payment of 12 % of the face value which is paid in two semiannual payments. The bond will mature in 15 years and its face value is $1000. What is Gul's pre-tax annual cost of debt? 1. 5.00% 2. More than 12% 3. Exactly 12% 4. Less than 12% but more than 8%

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