What is the effective cost of capital of bonds being offered

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Reference no: EM132034616

Closegate toothpaste needs additional capital of $10,000,000 for their new line of toothpaste. The owners are willing to use 20% of their total retained earnings amounting to $15,000,000 which currently bear an interest rate of 15% annually in a security investment. The company plans to offer bonds with face value amounting to $5,000,000 at a total cost of 10% compunded quarterly. The company plans to source the remaining funds through a bank loan that chagres an interest of 20% per annum. The company requires an IRR of 20% for the new line of toothpaste.

A. What is the effective cost of capital of the bonds being offered?

B. What is the MARR of the new toothpaste?

C. Does the MARR satisfy the company's IRR requirement?

Reference no: EM132034616

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