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B5. (Cost of borrowing alternatives) Exxon Mobil has a 34%

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tax rate and has decided...
B5. (Cost of borrowing alternatives) Exxon Mobil has a 34% tax rate and has decided to issue
$100 million of seven-year debt. It has three alternatives. A U.S. public offering would
require an 8% coupon with interest payable semiannually and $900,000 of flotation
expense. A U.S. private placement would require an 8-3/8% coupon with interest payable
semiannually and $500,000 of flotation expense. A Eurobond offering would require an
8-1/8% coupon with interest payable annually and $1,100,000 of flotation expense.
a. Calculate the after-tax cost of borrowing for each alternative.
b. Which alternative has the lowest cost of borrowing?
Submitted: 8 years ago.Category: Finance
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6/14/2010
Financial Professional: Neo, Tutor replied 8 years ago
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