This is a financial management question:
A firm raised $100 million from the bond market today. What will be the interest expense for the $100 million debt in the projected annual income statement of the firm for next year (1 year from today)?
The firm has the following capital structure
Preferred Stock 15%
Common Equity 60%
The firm is set to grow at a constant rate and pays a dividend of $3.60 per share for its common stock holders. The common stock sells at $54 per share. The firms Earnings Per Share was $8.40 in June 2001 and has grown to $16.80 this year (June 2010). The firms corporate tax rate is 40%. Debt can be sold to investors who will require $120 coupon interest per year per bond.
The coupon rate for a bond is equal to its yield to maturity.