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 risks
B) the flotation costs
C) the approximate returns
D) the taxes

Question

Quizplus · Accepted Answer

Flotation costs, which are fees associated with issuing a bond, must be taken into account when determining the net proceeds of the bond. The after-tax cost of the bond then takes into consideration any taxes that must be paid on the interest income earned from the bond. So, the correct choice is option B - the flotation costs.

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