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2. An overview of a firm's cost of debt The before-tax cost of debt is the interest rate that a firm pays on any new
2. An overview of a firm's cost of debt The before-tax cost of debt is the interest rate that a firm pays on any new debt financing. Andalusian Limited (AL) can borrow funds at an interest rate of 11.10% for a period of six years. Its marginal federal-plus-state tax rate is 25%. AL'S after-tax cost of debt is (rounded to two decimal places). At the present time, Andalusian Limited (AL) has 15-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,555.38 per bond, carry a coupon rate of 11%, and distribute annual coupon payments. The company incurs a federal-plus- state tax rate of 25%. If AL wants to issue new debt, what would be a reasonable estimate for its after-tax cost of debt (rounded to two decimal places)? (Note: Round your YTM rate to two decimal place.) 4.73% 4.11% 4.93% 3.70%
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