Rainier Corporation is planning to sell a new 12 percent bond maturing in 15 years

at ₱1,000 each. Each bond has a flotation charge of ₱30. If the firm’s marginal tax
rate is 34 percent, what is the approximate after-tax cost of new bonds?

❑ ₱ 1000−N d
❑❑k I+
❑❑ d ¿ n
N d + ₱ 1000
2
₱ 1000−( ₱ 1000−₱ 30)
₱ 120+
15
¿
(₱ 1000−₱ 30)+ ₱ 1000
2
₱ 1000−₱ 970
₱ 120+
15
¿
₱ 970+ ₱ 1000
2
₱ 122
¿
₱ 985
kd ¿ 12386=12.39 %

ki ¿ k d ×(1−T )
¿ 12.39 % ×(1−0.34)
ki ¿ 0.08177=8.18 %

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