When determining the after-tax cost of a bond, the face value of the issue must be adjusted to the net proceeds amounts by considering
A) the risk.
B) the flotation costs.
C) the approximate returns.
D) the taxes.

Question

Quizplus · Accepted Answer

Flotation costs are the costs incurred by a company when issuing new securities, including bonds. These costs can include underwriting fees, legal fees, and registration fees. Flotation costs reduce the amount of net proceeds a company receives, which ultimately affects the after-tax cost of the bond. Therefore, it is important to adjust the face value of the bond to the net proceeds amount after considering flotation costs in order to determine the after-tax cost of the bond.

When Determining the After-Tax Cost of a Bond, the Face