00:01
Hello students, in this question, we need to calculate the firm cost of debt.
00:06
So, for computing that, first of all, we need to compute the annual interest payment on board.
00:11
So, annual interest payment will be 8 % or 1000, which is par value, so it is dollar.
00:21
Now, we need to calculate the total cost of one, including flotation cost.
00:25
The total cost will be 910 plus 42, it will be 952.
00:30
Now, we can use the formula for cost of debt.
00:32
So, cost of debt is equal to annual interest payment divided by net proceeds plus flotation cost.
00:47
So, it will be, first of all, we need to compute the net proceeds.
00:52
Net proceeds, we will put up here is price paid by investor minus flotation cost.
00:56
So, cost of interest is 80 divided by, which is 910 minus 42 and flotation cost is 42...