A firm is trying to determine its cost of debt. The firm has a debt issue outstanding with 7 years to maturity that is quoted at 99.45 percent of face value. The issue makes semiannual payments and has a coupon rate of 7.50% annually. What is the after-tax cost of debt if the tax rate is 29%?
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After-tax cost of debt = Coupon rate * (1 - Tax rate) = 7.50% * (1 - 29%) = 7.50% * (1 - 0.29) = 7.50% * 0.71 Show more…
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