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The ACME Toy Company needs to raise $1,000,000 to improve its manufacturing plant.

It has decided to issue a $1,000 par value bond with a 11% annual coupon rate and a 20 year maturity. The investors require a 13% rate of return. There will be a $100,000 charge to issue the bonds.

a. Compute the market value of the bonds.

b. How many bonds will the firm have to issue to receive the needed funds?

c. What is the firm's after-tax cost of debt if its tax rate is 30%?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92750829

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