Reference no: EM132288690
Rogner Industries has four options for financing a new expansion.
1. Issue 5,000 10-year bonds with a par value of $1,000. Bonds have a coupon rate of 8.4% with semiannual coupons, sell for $956.22, and have an issuance fee of 2.0%.
2. Issue 5,000 12-year bonds with a par value of $1,000. Bonds have a coupon rate of 7.8% with quarterly coupons, sell for $1,013.14, and have an issuance fee of 1.8%.
3. Obtain a $5,000,000 10-year loan with an interest rate of 8.6%.
4. Obtain a $5,000,000 12-year loan with an interest rate of 8.8%.
If Rogner has a tax rate of 34%, which debt option will result in the LOWEST cost of debt?
- A Option 4
- B Option 3
- C Option 2
- D Option 1